Supplemental Information and Reopening of Comment Period for Amendments R egarding

 
Conformed to Federal Register version 
SECURITIES AND EXCHANGE COMMISSION 
17 CFR Parts 232, 240, 242, and 249 
[Release No. 34-97309; File No. S7-02-22] 
RIN 3235-AM45 
Supplemental Information and Reopening of Comment Period for Amendments R egarding 
the Definition of “Exchange”    
AGENCY: Securities and Exchange Commission. 
ACTION: Proposed rule; reopening of comment period.   
SUMMARY: The Securities and Exchange Commission (“Commission”) is reopening the 
comment period for its proposal (“Proposed Rules”) to amend the rule under the Securities 
Exchange Act of 1934 (“Exchange Act”) that defines certain terms used in the statutory 
definition of “exchange.”  The reopening provides supplemental information and economic 
analysis regarding trading systems that trade crypto asset securities that would be newly included 
in the definition of “exchange” under the Proposed Rules.  The Commission is requesting further 
information and public comment on certain aspects of the Proposed Rules as applicable to all 
securities and the compliance dates and other alternatives for the Proposed Rules.  The Proposed 
Rules were set forth in Release No. 34-94062 (“Proposing Release”), and the related comment 
period, which was reopened in Release No. 34-94868 on May 9, 2022, ended on June 13, 2022.  
The reopening of this comment period is intended to allow interested persons further opportunity 
to analyze and comment on the Proposed Rules in light of the supplemental information provided 
herein (“Reopening Release”). 

2 
 
DATES: The comment period for the proposed amendments published on March 18, 2022, at 87 
FR 15496, which was initially reopened on May 12, 2022, at 87 FR 29059, is again reopened.  
Comments should be received on or before June 13, 2023. 
ADDRESSES: Comments may be submitted by any of the following methods: 
Electronic Comments: 
• Use the Commission’s internet comment form (https://www.sec.gov/regulatory-
actions/how-to-submit-comments); or  
• Send an email to [email protected].  Please include File Number S7-02-22 on the 
subject line. 
Paper Comments: 
•     Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-1090.   
All submissions should refer to File Number S7-02-22.  This file number should be 
included on the subject line if email is used.  To help the Commission process and review your 
comments more efficiently, please use only one method of submission.  The Commission will 
post all comments on the Commission’s website (https://www.sec.gov/rules/proposed.shtml
).  
Comments are also available for website viewing and printing in the Commission’s Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m.  Operating conditions may limit access to the Commission’s 
Public Reference Room.  All comments received will be posted without change.  Persons 
submitting comments are cautioned that we do not redact or edit personal identifying information 
from comment submissions.  You should submit only information that you wish to make 
available publicly.  

3 
 
 Studies, memoranda, or other substantive items may be added by the Commission or staff 
to the comment file during this rulemaking.  A notification of the inclusion in the comment file 
of any materials will be made available on the Commission’s website.  To ensure direct 
electronic receipt of such notifications, sign up through the “Stay Connected” option at 
www.sec.gov
 to receive notifications by email. 
FOR FURTHER INFORMATION CONTACT: Tyler Raimo, Assistant Director, Matthew 
Cursio, David Garcia, Eugene Hsia, Megan Mitchell, Amir Katz, Special Counsels, and Joanne 
Kim, Attorney Advisor, at (202) 551-5500, Office of Market Supervision, Division of Trading 
and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. 
SUPPLEMENTARY INFORMATION:    
I. Background 
A. Exchange Regulatory Framework 
Exchange Act section 3(a)(1) states that the term “exchange” means any organization, 
association, or group of persons, whether incorporated or unincorporated, which constitutes, 
maintains, or provides a market place or facilities for bringing together purchasers and sellers of 
securities or for otherwise performing with respect to securities the functions commonly 
performed by a stock exchange as that term is generally understood, and includes the market 
place and the market facilities maintained by such exchange.
1
  
Title 17 section 240.3b-16(a) (“Rule 3b-16(a)”) defines certain terms in the definition of 
“exchange” under section 3(a)(1) of the Exchange Act to include any organization, association, 
or group of persons that: (1) brings together the orders for securities of multiple buyers and 
sellers; and (2) uses established, non-discretionary methods (whether by providing a trading 
 
1
  See 15 U.S.C. 78c(a)(1).   

4 
 
facility or by setting rules) under which such orders interact with each other, and the buyers and 
sellers entering such orders agree to the terms of a trade.
2
  Title 17 section 240.3b-16(b) (“Rule 
3b-16(b)”) explicitly excludes certain systems from the definition of “exchange.”
3
  Title 17 
section 240.3b-16 (“Rule 3b-16”) provides a functional test to assess whether a trading platform 
meets the definition of exchange and, if so, triggers exchange registration.  Section 5 of the 
Exchange Act
4
 requires an organization, association, or group of persons that meets the 
definition of “exchange” under section 3(a)(1) of the Exchange Act, unless otherwise exempt, to 
register with the Commission as a national securities exchange pursuant to section 6 of the 
Exchange Act.
5
   
Title 17 section 240.3a1-1(a)(2) (“Rule 3a1-1(a)(2)”) exempts from the Exchange Act 
section 3(a)(1) definition of “exchange” an organization, association, or group of persons that 
complies with Regulation ATS, which requires, among other things, meeting the definition of an 
alternative trading system (“ATS”) and registering as a broker-dealer.
6
  As a result of the 
exemption, an organization, association, or group of persons that meets the definition of an 
exchange and complies with Regulation ATS is not required by section 5 of the Exchange Act to 
register as a national securities exchange pursuant to section 6 of the Exchange Act, is not an 
 
2
  See 17 CFR 240.3b-16(a). 
3
  See Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844, 70852 (Dec. 22, 1998) 
(“Regulation ATS Adopting Release”).   Specifically, Rule 3b-16(b) excludes from the definition of 
“exchange” systems that perform only traditional broker-dealer activities, including: systems that route 
orders to a national securities exchange, a market operated by a national securities association, or a broker-
dealer for execution, or systems that allow persons to enter orders for execution against the bids and offers 
of a single dealer if certain additional conditions are met.  17 CFR 240.3b-16(b). 
4
  15 U.S.C. 78e.  Registered national securities exchanges are also self-regulatory organizations (“SROs”), 
and must comply with regulatory requirements applicable to both national securities exchanges and SROs. 
5
  15 U.S.C. 78f. 
6
  “Regulation ATS” consists of 17 CFR 242.300 through 242.304 (Rules 300 through 304 under the 
Exchange Act).  

5 
 
SRO, and, therefore, is not required to comply with the regulatory requirements applicable to 
national securities exchanges and SROs.
7
  
B. January 2022 Proposed Amendments to Exchange Act Rule 3b-16 
As described more fully in the Proposing Release,
8
 the Commission proposed to amend 
Exchange Act Rule 3b-16 to, among other things, replace “orders” with “trading interest” and 
define “trading interest”;
9
 remove the term “multiple” before “buyers and sellers”;
10
 add 
“communication protocols” as an example of an established, non-discretionary method that an 
organization, association, or group of persons can provide to bring together buyers and sellers of 
securities; simplify and align the rule text with the statutory definition of “exchange” under 
section 3(a)(1) of the Exchange Act; and add an exclusion under Exchange Act Rule 3b-16(b) for 
systems that allow an issuer to sell its securities to investors.
 
   
 
7
  An ATS that fails to comply with the requirements of Regulation ATS would no longer qualify for the 
exemption provided under Rule 3a1-1(a)(2), and thus, risks operating as an unregistered exchange in 
violation of section 5 of the Exchange Act.  See Securities Exchange Act Release No. 83663 (July 18, 
2018), 83 FR 38768, 38772 n.36 (Aug. 7, 2018) (“NMS Stock ATS Adopting Release”). 
8
  See Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022).  The 
Proposed Rules also: (1) re-proposed amendments to Regulation ATS for ATSs that trade government 
securities as defined under section 3(a)(42) of the Exchange Act or repurchase and reverse repurchase 
agreements on government securities (“Government Securities ATSs”); (2) proposed amendments to Form 
ATS-N for NMS Stock ATSs and Government Securities ATSs; (3) proposed amendments to 17 CFR 
242.301(b)(5) (“Rule 301(b)(5)”) of Regulation ATS (“Fair Access Rule”) for ATSs; (4) proposed to 
require electronic filing of and to modernize Form ATS and Form ATS-R; and (5) re-proposed 
amendments to regulations regarding systems compliance and integrity to apply to ATSs that meet certain 
volume thresholds in U.S. Treasury Securities or in a debt security issued or guaranteed by a U.S. executive 
agency, or government-sponsored enterprise.   
9
  As proposed, “trading interest” (defined in proposed Rule 300(q) of Regulation ATS) would include 
“orders,” as the term is defined under 17 CFR 240.3b-16(c) (“Rule 3b-16(c)”), or any non-firm indication 
of a willingness to buy or sell a security that identifies at least the security and either quantity, direction 
(buy or sell), or price.  See Proposing Release at 15540. 
10
  The Commission proposed removing the word “multiple” from Exchange Act Rule 3b-16(a)(1) to mitigate 
confusion as to its application to non-firm trading interest, including request-for-quote (“RFQ”) systems, 
and align the rule more closely with the statutory definition of “exchange,” which does not contain the 
word “multiple” but includes the plural terms “purchasers and sellers.”  See id. at 15506.  The Commission 
also stated in the Proposing Release that the use of plural terms in “buyers and sellers” in Rule 3b-16(a) and 
“purchasers and sellers” in the statutory definition of “exchange” makes sufficiently clear that an exchange 
need only have more than one buyer and more than one seller participating on the system to meet this 
prong.  See id. at 15506 n.105.  

6 
 
Specifically, the Commission proposed to amend Exchange Act Rule 3b-16(a) to include 
within the definition of “exchange” an organization, association, or group of persons that 
constitutes, maintains, or provides a market place or facilities for bringing together buyers and 
sellers of securities or for otherwise performing with respect to securities the functions 
commonly performed by a stock exchange if it is not subject to an exception under Rule 3b-16(b) 
and it: (1) brings together buyers and sellers of securities using trading interest; and (2) makes 
available established, non-discretionary methods (whether by providing a trading facility or 
communication protocols, or by setting rules) under which buyers and sellers can interact and 
agree to the terms of a trade.  For purposes of this Reopening Release, trading systems that meet 
the criteria of Exchange Act Rule 3b-16(a), as proposed to be amended (i.e., offer the use of non-
firm trading interest and provide non-discretionary protocols),
11
 are referred to throughout the 
release as “New Rule 3b-16(a) Systems.”  New Rule 3b-16(a) Systems would be subject to the 
definition of “exchange” and be required to register as a national securities exchange or comply 
with the conditions to an exemption to such registration, such as Regulation ATS.   
C. Purpose of the Reopening Release 
In response to the Proposing Release, the Commission received many comments.
12
  In 
particular, the Commission received requests for information about the application of the 
Proposed Rules to trading systems for crypto asset securities
13
 and trading systems that use 
 
11
  Such systems were referred to as “Communication Protocol Systems” in the Proposing Release.  See id. at 
15497 n.5. 
12
  See infra sections II.A and II.B.  Comment letters cited in this Reopening Release are comment letters 
received in response to the Proposing Release, which are available at https://www.sec.gov/comments/s7-
02-22/s70222.htm.  
13
  See infra note 26. 

7 
 
distributed ledger or blockchain technology (broadly referred to as “DLT”),
14
 including systems 
commenters characterize as decentralized finance or “DeFi.”
15
  Commenters request information 
about whether and how such systems can comply with existing federal securities laws and the 
Proposed Rules.
16
  Given these comments, the Commission is issuing this Reopening Release 
regarding the potential effects of the proposed amendments to Exchange Act Rule 3b-16 on 
trading systems for crypto asset securities and trading systems using DLT, including systems 
commenters characterize as various forms of “DeFi,” and requesting further information and 
public comment on aspects of the Proposed Rules, more generally.  This Reopening Release also 
supplements the economic analysis in the Proposing Release by providing additional analysis on 
the estimated impact of the Proposed Rules on trading systems for crypto asset securities and 
those using DLT, which include various so-called “DeFi” trading systems, and requests further 
comment. 
 
14
  The terms DLT and blockchain, a type of DLT, generally refer to databases that maintain information 
across a network of computers in a decentralized or distributed manner. Blockchain networks commonly 
use cryptographic protocols to ensure data integrity.  See, e.g., World Bank Group, “Distributed Ledger 
Technology (DLT) and Blockchain,” FinTech Note No. 1 (2017), available at 
https://openknowledge.worldbank.org/bitstream/handle/10986/29053/WP-PUBLIC-Distributed-
LedgerTechnology-and-Blockchain-Fintech-Notes.pdf?sequence=1&isAllowed=y. 
15
  Commenters vary in their definitions of “DeFi,” or what makes a product, service, arrangement or activity 
“decentralized.”  See generally T he Board of the International Organization of Securities Commissions, 
IOSCO Decentralized Finance Report (Mar. 2022) (“IOSCO Decentralized Finance Report”), available at 
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf.  Trading systems for crypto assets that are 
colloquially referred to as “decentralized” typically combine more traditional technology (such as web-
based systems that accept and display orders and servers that store orders) with distributed ledger 
technology (such as “smart contract” provisioned blockchains – self-executing code run on distributed 
ledgers that carry out “if/then” type computations).   See id. at 1.  See also infra note 44.   
16
  See, e.g., infra notes 25, 58, 80, 82-84, and 86-87. 

8 
 
II. Exchange Activity Involving Crypto Asset Securities and DLT under the Proposed 
Rules 
A. Crypto Asset Securities 
Commenters reflecting a broad range of market participants shared feedback on the 
application of the Proposed Rules to all securities, including crypto assets that are securities.  
Some commenters agree with the Commission’s view
17
 that the Proposed Rules should apply to 
trading in any type of security, regardless of the specific technology used to issue and/or transfer 
the security.
18
  Several commenters request that the Commission clarify whether the Proposed 
Rules apply to crypto asset securities.
19
  Commenters point to the lack of any explicit references 
in the Proposing Release to systems that trade crypto asset securities, including so-called “DeFi” 
trading systems, with some suggesting that such systems would be outside the scope of the 
Proposed Rules.
20
  One commenter states that the Proposed Rules should not apply to crypto 
asset securities.
21
  Some commenters state their view that there is supposed regulatory 
 
17
  See Proposing Release at 15503. 
18
  See, e.g., Letters from Marcia E. Asquith, Executive Vice President, Board and External Relations, FINRA, 
dated Apr. 19, 2022 (“FINRA Letter”) at 4; Stephen W. Hall, Legal Director and Securities Specialist, and 
Scott Farnin, Legal Counsel, Better Markets, Inc., dated Apr. 18, 2022 (“Better Markets Letter”) at 8; Tyler 
Gellasch, Executive Director, Healthy Markets Association, dated June 13, 2022 (“Healthy Markets 
Letter”) at 6 n.21 (stating that the Proposed Rules should apply only to crypto assets that meet the 
definition of a security under the Exchange Act “to avoid unnecessarily creating regulatory inconsistencies 
and loopholes, and fulfill its investor protection mandate”).    
19
  See, e.g., Letters from Jai Ramaswamy, Chief Legal Officer and Miles Jennings, General Counsel, 
a16zCrypto, A.H. Capital Management, LLC, dated Apr. 18, 2022 (“a16z Letter”) at 3; Kristin Smith, 
Executive Director and Jake Chervinsky, Head of Policy, Blockchain Association, dated Apr. 18, 2022 
(“Blockchain Association Letter II”) at 7-8 ; Brett Kitt, Associate Vice President, Principal Associate 
General Counsel, Nasdaq, Inc., dated Apr. 18, 2022 (“Nasdaq Letter”) at 5; Joanna Mallers, Secretary, FIA 
Principal Traders Group, dated Apr. 21, 2022 (“FIA PTG Letter”) at 2; Sheila Warren, Chief Executive 
Officer, Crypto Council for Innovation, dated Apr. 18, 2022 (“Crypto Council Letter”) at 2; Sasha Hodder, 
Hodder Law Firm, P.A., dated Feb. 25, 2022; Tim Lau, dated Apr. 4, 2022; Zachary Stinson, dated Apr. 18, 
2022 (“Stinson Letter”); Karthik Mahalingam, dated Apr. 19, 2022. 
20
  See, e.g., Letters from Michelle Bond, Chief Executive Officer, Association for Digital Asset Markets, 
dated Apr. 18, 2022 (“ADAM Letter II”) at 14; Gus Coldebella and Gregory Xethalis, dated Apr. 18, 2022 
(“Coldebella and Xethalis Letter”) at 1-2; Crypto Council Letter at 3; a16z Letter at 7. 
21
  See ADAM Letter II at 3, 9-12. 

9 
 
uncertainty as to which crypto assets are securities.
22
  Some commenters state that as a result of 
such supposed uncertainty, it is unclear whether the Proposed Rules would apply to so-called 
“DeFi” protocols.
23
  One commenter states that the Commission should defer action on any 
rulemaking impacting crypto assets until, among things, such supposed uncertainty is 
eliminated.
24
  Some commenters state that the existing exchange regulatory framework is 
incompatible with systems that trade crypto asset securities using so-called “DeFi protocols.”
25
  
 
22
  See, e.g., a16z Letter at 3, 15-16 (stating that the Commission has not made clear which digital assets it 
believes are “securities”); Blockchain Association Letter II at 3, 9 (stating whether and when a given digital 
asset may qualify as a security under federal securities laws remains unclear); Letter from LeXpunK, dated 
Apr. 18, 2022 (“LeXpunK Letter”) at 2 n.4 (stating that given the “lack of clarity with respect to the 
Commission’s classification of digital assets and transactions involving digital assets,” “there remains a 
looming uncertainty as to whether the same would be regarded as securities and securities transactions, 
respectively”). 
23
  See, e.g., a16z Letter at 3, 15-16 (stating that given the uncertainty on which digital assets are “securities,” 
some so-called “DeFi systems or protocols” that do not clearly meet the definition of “Communication 
Protocol Systems” or facilitate transactions in digital assets could endeavor to comply with the Proposed 
Rules while other “DeFi systems or protocols” might not, which raises the danger of inconsistency and 
could create unforeseen consequences in the market for digital assets); Blockchain Association Letter II at 
3, 9 (stating that given the Commission’s “expansive view of what may be deemed a security, there remains 
a risk that certain digital assets that users trade through Decentralized Protocols may (ex post) be deemed 
by the [Commission] to be securities”).  See also Damien G. Scott, Deputy General Counsel, CoinList, 
dated Apr. 18, 2022 (“CoinList Letter”) at 1-2 (explaining that crypto asset industry needs clarity about 
how the rules written for traditional paper securities secured and validated by intermediaries apply in 
practice to new digital technology). 
24
  See Letter from Jay H. Knight, Chair of the Federal Regulation of Securities Committee, Federal 
Regulation of Securities Committee of the Business Law Section of the American Bar Association, dated 
Apr. 18, 2022 (“ABA Letter”) at 5-6 (suggesting the Commission defer the application of the Proposed 
Rules to digital asset intermediaries and their underlying technology pending completion of coordination 
among a broad range of government agencies to develop an appropriate approach to digital assets, pursuant 
to the Executive Order on Ensuring the Responsible Development of Digital Assets). 
25
  See, e.g., a16z Letter at 9 (“But even casting aside the practical challenges that DeFi protocols would 
confront in attempting to follow Regulation ATS, the Commission seems to overlook the fact that the 
purposes behind Regulation ATS would not be served by imposing its requirements on DeFi protocols.”); 
Letter from William C. Hughes, Senior Counsel & Director of Global Regulatory Matters, ConsenSys 
Software Inc., dated Apr. 14, 2022 (“ConsenSys Letter”) at 8 (“The ’34 Act’s requirements, tailored as they 
are to the centralized nature of exchanges, make no sense when applied to decentralized blockchain-based 
systems.”); Letter from Delphi Digital, dated Apr. 18, 2022 (“Delphi Digital Letter”) at 6 (stating that 
“systems lacking order-book logic, or which are sufficiently decentralized (i.e., lacking any particular 
owner/operator who could rationally be expected to comply with the SEC’s intermediaries-based regulatory 
regime)” have been viewed by participants in the digital asset marketplace as outside the scope of securities 
exchange regulation).  One commenter cites a paper stating that “[s]ome characteristics of DeFi may be 
incompatible with the existing regulatory framework, particularly given that the current framework is 
designed for a system that has financial intermediaries at its core.”  See Letter from Jake Chervinsky, Head 
 

10 
 
Crypto assets
26
 generally use DLT as a method to record ownership and transfers.
27
  
Further, a crypto asset that is a security is not a separate type or category of security (e.g., NMS 
stock, corporate bond) for purposes of federal securities laws based solely on the use of DLT.  
The definition of “exchange” under section 3(a)(1) of the Exchange Act and existing Rule 3b-16 
thereunder, and the requirement that an exchange register with the Commission pursuant to 
section 5 of the Exchange Act, apply to all securities, including crypto assets that are securities, 
which include investment contracts or any other type of security.
28
  The Commission 
understands that currently certain trading systems for crypto assets, including so-called “DeFi” 
systems, operate like an exchange as defined under federal securities laws—that is, they bring 
together orders of multiple buyers and sellers using established, non-discretionary methods (by 
providing a trading facility, for example) under which such orders interact and the buyers and 
sellers entering such orders agree upon the terms of a trade.
29
  Because it is unlikely that systems 
 
of Policy, Blockchain Association and Miller Whitehouse-Levine, Policy Director, DeFi Education Fund, 
dated June 13, 2022 (“Blockchain Association/DeFi Education Fund Letter”) at 4 (citing Org. for Econ. 
Cooperation and Dev., Why Decentralised Finance (DeFi) Matters and the Policy Implications (2022) at 
12). 
26
  For purposes of this Reopening Release, the Commission does not distinguish between the terms “digital 
asset securities” and “crypto asset securities.”  The term “digital asset” refers to an asset that is issued 
and/or transferred using distributed ledger or blockchain technology, including, but not limited to, so-called 
“virtual currencies,” “coins,” and “tokens.”  See Securities Exchange Act Release No. 90788 (Dec. 23, 
2020), 86 FR 11627, 11627 n.1 (Feb. 26, 2021)  (“Commission Statement on Custody of Digital Asset 
Securities by Special Purpose Broker-Dealers”).  A digital asset may or may not meet the definition of a 
“security” under the federal securities laws.  See, e.g., Report of Investigation Pursuant to Section 21(a) of 
the Securities Exchange Act of 1934: The DAO, Securities Exchange Act Release No. 81207 (July 25, 
2017) (“DAO 21(a) Report”), available at 
https://www.sec.gov/litigation/investreport/34-81207.pdf.  See 
also SEC v. W.J. Howey Co., 328 U.S. 293 (1946).  To the extent digital assets rely on cryptographic 
protocols, these types of assets also are commonly referred to as “crypto assets.” 
27
  See Investment Advisers Act Release No. 6240 (Feb. 15, 2023), 88 FR 14672, 14676 n.25 and 
accompanying text (Mar. 9, 2023); Securities Exchange Act Release No. 96496 (Dec. 14, 2022), 88 FR 
5440, 5448 n.94 and accompanying text (Jan. 27, 2023).  
28
  Section 3(a)(1) of the Exchange Act and Rule 3b-16 thereunder do not apply to market places or facilities 
that do not trade securities.  This would also remain unchanged under Exchange Act Rule 3b-16, as 
proposed to be amended. 
29
  In addition to its exchange obligations, depending on the facts and circumstances, an organization, 
association, or group of persons engaging in crypto asset securities business may also have legal and 
 

11 
 
trading a large number of different crypto assets are not trading any crypto assets that are 
securities,
30
 these systems likely meet the current criteria of Exchange Act Rule 3b-16(a) and are 
subject to the exchange regulatory framework.
31
  Indeed, the President’s Executive Order on 
Ensuring Responsible Development of Digital Assets acknowledged that “many activities 
involving digital assets are within the scope of existing domestic laws and regulations” and 
systems trading such assets “should, as appropriate, be subject to and in compliance with 
regulatory and supervisory standards that govern traditional market infrastructures and financial 
firms.”
32
  The proposed amendments to Exchange Act Rule 3b-16 do not change any existing 
obligation for these systems to register as a national securities exchange or comply with the 
conditions to an exemption to such registration, such as Regulation ATS.
33
   
The Commission preliminarily believes that some amount of crypto asset securities trade 
on New Rule 3b-16(a) Systems, and that such systems may use DLT or be “DeFi” trading 
systems, as described by some commenters.  Depending on facts and circumstances, systems that 
 
regulatory obligations under the federal securities laws for broker-dealer, custodial, clearing, or lending 
activities, among others.  See U.S. Securities and Exchange Commission v. Beaxy Digital, Ltd., et al., No. 
23-cv-1962 (N.D. Ill. Mar. 29, 2023) (Docket Entries 1, 4) (final judgment entered on consent enjoining 
crypto asset trading platform from operating an unregistered exchange, broker, and clearing agency).  
30
  See Fin. Stability Oversight Council, Report on Digital Asset Financial Stability Risks and Regulation 119 
(2022) (“FSOC Report”) at 97, available at https://home.treasury.gov/system/files/261/FSOC-Digital-
Assets-Report-2022.pdf.  Each system should analyze whether the crypto assets that it offers for trading 
meet the definition of a security under the federal securities laws and prior Commission statements.  See 
supra note 26.  The Commission will continue to evaluate whether currently operating systems are acting 
consistent with federal securities laws and the rules thereunder.   
31
  See, e.g., DAO 21(a) Report at 17 (“The Platforms that traded DAO Tokens appear to have satisfied the 
criteria of Rule 3b-16(a) and do not appear to have been excluded from Rule 3b-16(b).”); In the Matter of 
Zachary Coburn, Securities Exchange Act Release No. 84553 (Nov. 8, 2018) (settled cease-and-desist 
order); In the Matter of Poloniex, LLC, Securities Exchange Act Release No. 92607 (Aug. 9, 2021) (settled 
cease-and-desist order).   
32
  See President’s Executive Order on Ensuring Responsible Development of Digital Assets, dated Mar. 9, 
2022, available at https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-
order-on-ensuring-responsible-development-of-digital-assets/. 
33
  17 CFR 242.300 through 242.304. 

12 
 
offer the use of non-firm trading interest and provide non-discretionary protocols to bring 
together buyers and sellers of crypto assets securities
34
 can perform a market place function like 
that of an exchange—that is, they allow participants to discover prices, find liquidity, locate 
counterparties, and agree upon terms of a trade for securities.  The exchange regulatory 
framework would provide market participants that use New Rule 3b-16(a) Systems for crypto 
asset securities with transparency, fair and orderly markets, and investor protections that apply to 
today’s registered exchanges or ATSs.
35
  These benefits, in turn, promote capital formation, 
competition, and market efficiencies.
36
  An organization, association, or group of persons that 
constitutes, maintains, or provides a market place or facilities for bringing together purchasers 
and sellers of crypto asset securities or performs with respect to crypto asset securities the 
functions commonly performed by a stock exchange as that term is generally understood under 
the criteria of Exchange Act Rule 3b-16(a), as proposed to be amended, would be an exchange 
under section 3(a)(1) of the Exchange Act and would be required to register as a national 
securities exchange or comply with the conditions of Regulation ATS.   
Some commenters question the application of the proposed amendments to Exchange Act 
Rule 3b-16 to assets that may not be securities.
37
  In addition, commenters indicate that many 
 
34
  See Proposing Release at 15503. 
35
  See Regulation ATS Adopting Release at 70847. 
36
  See 15 U.S.C. 78c(f).  
37
 See ADAM Letter II at 9 (stating that “it is premature of the SEC to include digital assets within the scope 
of the exchange regulatory framework until such time as there is a better understanding regarding the 
appropriate regulatory approach for such assets”); LeXpunK Letter at 2 n.4 (stating “where digital asset 
transactions do not involve securities, U.S. securities laws (and the instant proposed rulemaking) would be 
inapplicable” and that “in light of the lack of clarity with respect to the Commission’s classification of 
digital assets and transactions involving digital assets, however, there remains a looming uncertainty as to 
whether the same would be regarded as securities and securities transactions, respectively”); a16z Letter at 
15-16 (stating that the Proposing Release “does not mention ‘digital asset securities’ or ‘investment 
contracts,’ two of the terms the Commission uses to describe digital assets believed to be securities” and 
that the “omissions will further compound the uncertainty over whether the Proposal was meant to cover 
digital assets”). 

13 
 
crypto asset trading systems offer pairs trading,
38
 which typically involves two crypto assets 
(which may or may not be securities) that can be exchanged directly for each other using their 
relative price (“trading pair”).
39
  Trading pairs consist of both a base and quote asset; the base 
asset is the asset quoted in terms of the value of the other (i.e., quote) asset in the trading pair.
40
  
Today, trading pairs   can include a combination of securities and non-securities and frequently 
include so-called stablecoins, bitcoin, or ether as the base asset, quote asset, or both.
41
  Users 
entering a trading pair on a system can exchange one crypto asset for another without 
exchanging the crypto asset for U.S. dollars (or other fiat currency) by simultaneously selling 
one asset while buying another on the system without exchanging either crypto asset for U.S. 
dollars first.   
Section 3(a)(1) of the Exchange Act and Rule 3b-16 state that an exchange is any 
organization, association, or group of persons which constitutes, maintains, or provides a market 
place or facilities for bringing together purchasers and sellers of securities or for otherwise 
performing with respect to securities the functions commonly performed by a stock exchange as 
 
38
  See LeXpunK Letter at 4 and 4 n.19; Delphi Digital Letter at 7 (stating that, in the context of systems that 
use “technology in DeFi,” automated market makers (“AMMs”) use “liquidity pools,” which “represents 
assets in (and a market for) a single token pair” that are “‘locked’ within smart contracts”).   
39
  See Fan Fang, Carmine Ventre, Michail Basios et al., Cryptocurrency Trading: A Comprehensive Survey, 8 
FIN. INNOVATION 13 (2022), available at https://doi.org/10.1186/s40854-021-00321-6 (stating that in 
general, pairs trading involves two similar assets with a stable long-run relationship and slightly different 
spreads, and if the spread widens, investors short the high-priced crypto asset and buy the low-priced 
crypto asset). 
40
  See A Review of Cryptoasset Market Structure and Regulation in the United States, Feb. 2023, Program on 
International Financial Systems, available at https://www.pifsinternational.org/cryptoasset-market-
structure-and-regulation-in-the-u-s/ (  “PIFS Crypto Review”). 
41
  Crypto asset trading pairs offered by trading systems today also include other combinations (e.g., crypto 
asset (security or non-security) for another crypto asset (security or non-security)).  While some of the 
major crypto asset trading systems available in the U.S. allow trading in U.S. dollars, others only allow 
trading between different crypto assets and not fiat currencies.  The main base asset used on certain of these 
other systems is Tether (USDT).  See Igor Makarov & Antoinette Schoar, Trading and Arbitrage in 
Cryptocurrency Markets, 135 J. FIN. ECON.  293 (2020).  See also PIFS Crypto Review at 10-11 (stating that 
most global bitcoin trading is conducted with stablecoins rather than fiat currency). 

14 
 
that term is generally understood.
42
  An organization, association, or group of persons that meets 
the criteria of existing Exchange Act Rule 3b-16(a), and Rule 3b-16(a), as proposed to be 
amended, and makes available for trading a security and a non-security would meet the 
definition of “exchange” notwithstanding the fact that the entity traded non-securities.  For its 
securities activities, the organization, association, or group of person must register as a national 
securities exchange or comply with the conditions of Regulation ATS.
43
  Market places or 
facilities of, and the functions performed by, national securities exchanges and ATSs trade only 
securities quoted in and paid for in U.S. dollars.  
The Commission is soliciting additional comment on Rule 3b-16, as proposed to be 
amended, and in particular responses to the following questions:  
1. Should a New Rule 3b-16(a) System that trades crypto asset securities have the 
choice of registering as a national securities exchange or complying with the 
conditions of Regulation ATS?  Why or why not?   
2. Please describe any trading systems that currently offer the use of non-firm trading 
interest and provide non-discretionary protocols to bring together buyers and sellers 
of crypto asset securities, including a description of trading interest used, 
functionalities or protocols, requirements, limitations, types of market participants 
that use the systems, transaction volume, crypto asset securities offered for trading, 
and any other services offered by the system.  Please provide any data, literature, or 
 
42
  See 15 U.S.C. 78c(a)(1). 
43
  Section 5 of the Exchange Act states that “[i]t shall be unlawful for any . . . exchange, directly or indirectly, 
to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using 
any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction 
in a security, or to report any such transaction, unless such exchange (1) is registered as national securities 
exchange under [section 6 of the Exchange Act], or (2) is exempted from such registration . . . .”  See 15 
U.S.C. 78e. 

15 
 
other information that you consider relevant to the Commission’s analysis of New 
Rule 3b-16(a) Systems for crypto asset securities, including but not limited to, the 
types of systems, the amount of trading volume on such systems, the number of 
participants on such systems (as well as the participant types, such as institutional and 
retail), and the types of crypto asset securities they trade. 
3. Do organizations, associations, or groups of persons that meet the criteria of New 
Rule 3b-16(a) Systems and trade crypto asset securities quote a security in an asset 
other than in U.S. dollars, such as a non-security crypto asset, and provide for the 
purchase or sale of that asset on the system or off-system?  How do investors and 
trading systems use pairs trading involving non-security crypto assets and crypto 
asset securities?  Are there significant differences between investors’ use of pairs 
trading on centralized trading systems versus trading systems that commenters 
describe as “ DeFi”?  Please explain.  For example, approximately how much trading 
volume for crypto asset securities is executed using trading pairs on various types of 
platforms discussed above?  What percentage of trading in crypto asset securities, in 
terms of volume executed, is in exchange for U.S. dollars?  Please provide any data, 
literature, or other information that you consider relevant to the Commission’s 
analysis. 
B. Exchange Activity Using DLT, I  ncluding “DeFi” Systems 
1. Technology Neutral and Functional Test of the “Exchange” Definition 
The Commission received comments regarding whether the proposed amendments to 
Exchange Act Rule 3b-16 were intended to apply to what commenters characterize as “DeFi,” 
and comments stating that the Proposed Rules could be interpreted to cover a broad range of 

16 
 
technologies, including technologies used by so-called “DeFi” trading systems.
44
  Some 
commenters state that so-called “DeFi” trading systems should be excluded from Exchange Act 
Rule 3b-16(a), as proposed to be amended.
45
      
 
44
  See, e.g.,  ConsenSys Letter at 8-9 (requesting that any final rule make clear that “blockchain-based 
systems” would not be exchanges); a16z Letter at 1, 2, 28 (stating, among other things, that the Proposed 
Rules could be interpreted as applying to a broad array of technologies, including “DeFi systems and 
protocols”); Crypto Council Letter at 2, 4 (stating, in part, that the Proposed Rules could apply to the 
“crypto and decentralized finance markets”); LeXpunK Letter at 3 (stating, in part, its belief that many 
“DeFi protocols and applications” would meet the definition of a “communication protocol system” under 
the Proposed Rules); Global Digital Asset & Cryptocurrency Association, dated Apr. 18, 2022 (“GDCA 
Letter II”) at   11 (questioning whether “decentralized exchanges” would fall under the definition of 
“exchange”); Letter from Miller Whitehouse-Levine, Policy Director, DeFi Education Fund, dated Apr. 18, 
2022 (“DeFi Education Fund Letter”) at 3, 15 (stating, in part, that, without clarification, the Proposed 
Rules could be interpreted to regulate certain “DeFi protocols”); Letter from Dante Disparte, Chief Strategy 
Officer and Head of Global Policy, Circle Internet Financial, LLC, dated Apr. 18, 2022 (“Circle Letter”) at 
3; Letter from Michelle Bond, Chief Executive Officer, Association for Digital Asset Markets, dated Feb. 
2, 2022 (“ADAM Letter I”) at 1-2 (stating that the Proposed Rules could expand Commission authority 
over “spot digital asset markets and peer-to-peer decentralized networks” in ways not discussed in the 
Proposing Release); Letter from Kimberly Unger, The Security Traders Association of New York, dated 
Feb. 3, 2022 (“STANY Letter”) at 2; Letter from Andrew Vollmer, Mercatus Center at George Mason 
University, dated Mar. 11, 2022 (“Vollmer Letter”) at 2.  Two commenters also state their belief that there 
is a lack of clarity as to the application of the Proposed Rules to “decentralized finance” or “DeFi 
protocols” that raises administrative due process concerns for industry participants.  See ConsenSys Letter 
at 18; DeFi Education Fund Letter at 19.  The foregoing commenters describe systems that use DLT with 
varying definitions and terminology (some of which the commenters do not define).  As discussed above, 
there is no generally agreed upon definition of “DeFi” or decentralization.  See IOSCO Decentralized 
Finance Report at 1, 9.  Nonetheless, as discussed below, the Proposed Rules, like the existing exchange 
framework, regulate exchange activity, and not the technology underlying such activity.   
45
  See, e.g., a16z Letter at 3 (stating that “DeFi protocols eliminate the need for a central operator that could 
implement regulatory requirements applicable to traditional securities exchanges or broker-dealers” and 
therefore the Commission should “clarify that the [p]roposal does not apply to DeFi systems by explicitly 
excluding them”); LeXpunK Letter at 2 (stating that the Proposed Rules would improperly expand the 
Commission’s authority to regulate “technologists with neither the resources nor the reasonable expectation 
of being so regulated, who ‘make available’ peer-to-peer ‘communication protocols’ used in DeFi”); 
ConsenSys Letter at 8-12 (stating its belief that the term “communication protocols” does not cover 
“blockchain-based systems”); Delphi Digital Letter at 6 (stating that, unless “decentralized-in-actuality 
software systems – including ‘automatic market-making’ smart contract systems” are carved out of the 
term “communication protocols,” the Proposed Rules would impose “impossible compliance obligations on 
persons who may merely write open-source ‘communications protocol’ code or publish information about 
the contents of communications systems which they do not control”); Blockchain Association Letter II at 3 
(stating that application of the Proposed Rules to “decentralized exchange protocols through which digital 
assets may be traded, [and] operate[d] autonomously and automatically through smart contracts and the 
participation of their users” would exceed the Commission’s statutory authority under the Exchange Act); 
Letter from Spence Purnell, Director of Technology Policy, Reason Foundation, dated Feb. 23, 2022 at 2 
(stating that the Proposed Rules should not apply to “technologies such as decentralized finance and smart-
contracts” because they were not explicitly considered in the Proposing Release); Letter from Bryant 
Eisenbach, dated Feb. 2, 2022 (“Eisenbach Letter”).  See also Letter from Rep. Patrick McHenry, Ranking 
Member, and Rep. Bill Huizenga, Ranking Member Subcommittee on Investor Protection, 
Entrepreneurship and Capital Markets, House Committee on Financial Services, dated Apr. 18, 2022 
 

17 
 
When adopting Exchange Act Rule 3b-16, the Commission stated that the exchange 
framework is based on the functions performed by a trading system, not on its use of 
technology.
46
  Notwithstanding how an entity may characterize itself or the technology it uses, a 
functional approach (taking into account the relevant facts and circumstances) will be applied 
when assessing whether the activities of a trading system meet the definition of an 
exchange.  These principles continue to apply today under existing Rule 3b-16 and would 
equally apply under Rule 3b-16, as proposed to be amended.
47
  Accordingly, an organization, 
association, or group of persons that uses any form or forms of technology (e.g., DLT, including 
technologies used by so-called “DeFi” trading systems, computers, networks, the Internet, cloud, 
telephones, algorithms, a physical trading floor) that constitutes, maintains, or provides a market 
place for bringing together purchasers and sellers of securities, including crypto asset securities, 
or for otherwise performing with respect to securities the functions commonly performed by a 
stock exchange under the current criteria of Exchange Act Rule 3b-16(a), or Exchange Act Rule 
3b-16(a), as proposed to be amended, would be an exchange and would be required to register as 
a national securities exchange or comply with the conditions of Regulation ATS.   
 
(“McHenry/Huizenga Letter”) (expressing concern that the Proposed Rules “can be interpreted to expand 
the SEC’s jurisdiction beyond its existing statutory authority to regulate market participants in the digital 
asset ecosystem, including in decentralized finance”).  
46
  See Regulation ATS Adopting Release at 70902.   
47
  See, e.g., DAO 21(a) Report (stating that “any entity or person engaging in the activities of an exchange, 
such as bringing together the orders for securities of multiple buyers and sellers using established non-
discretionary methods under which such orders interact with each other and buyers and sellers entering 
such orders agree upon the terms of the trade, must register as a national securities exchange or operate 
pursuant to an exemption from such registration,” “the automation of certain functions through this 
technology, ‘smart contracts,’ or computer code, does not remove conduct from the purview of the U.S. 
federal securities laws,” and that the requirements of the U.S. federal securities laws “apply to those who 
offer and sell securities in the United States, regardless whether the issuing entity is a traditional company 
or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. 
dollars or virtual currencies, and regardless whether they are distributed in certificated form or through 
distributed ledger technology”).  

18 
 
2. So-Called “DeFi” Systems and Exchange Act Rule 3b-16 
Several commenters state their belief that the Proposed Rules could cause what they 
describe as “DeFi” trading systems to meet the criteria of Exchange Act Rule 3b-16(a), as 
proposed to be amended.
48
  So-called “DeFi” trading systems can be used to allow investors to 
discover prices, find liquidity, locate counterparties, and agree upon terms of a trade for 
securities, including crypto asset securities, thereby performing market place activities or 
functions commonly performed by a stock exchange.  Today, many systems, some of which are 
described as “DeFi” by commenters, bring together buyers and sellers of securities, including 
crypto asset securities, and could meet the existing criteria of Exchange Act Rule 3b-16(a).  The 
Commission understands that so-called “DeFi” trading systems often rely on electronic messages 
that are exchanged between buyers and sellers so that they can agree upon the terms of a trade 
without negotiations.
49
  If these electronic messages constitute a firm willingness to buy or sell a 
security, including a crypto asset security, the messages would meet the definition of orders 
 
48
  See DeFi Education Fund Letter at 15; Circle Letter at 3; ADAM Letter I at 1-2; STANY Letter at 2; 
Vollmer Letter at 2; Crypto Council Letter at 2; LeXpunK Letter at 7-8. 
49
  For example, AMM is a mechanism designed to create liquidity for others seeking to effectuate trades.  See 
President’s Working Group on Financial Markets, Federal Deposit Insurance Corporation, and Office of the 
Comptroller of the Currency, Report on Stablecoins (Nov. 2021), available at 
https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf.  Liquidity pools of so-called 
“DeFi” trading systems rely on AMM protocols which typically use preset mathematical equations (e.g., 
x*y=k, where x and y represent the values of tokens in a liquidity pair and k is a constant) to ensure the 
ratio of assets in the liquidity pools remains balanced and determine prices based on trading volumes.  See 
U.S. Department of the Treasury, Crypto-Assets: Implications for Consumers, Investors, and Businesses 
(Sept. 2022) (“Crypto-Assets Treasury Report”), available at 
https://home.treasury.gov/system/files/136/CryptoAsset_EO5.pdf.  Some commenters argue that systems 
that use AMMs do not use trading interest as described in the Proposed Rules.  See LeXpunK Letter at 12-
13; Delphi Digital Letter at 9-10.  One commenter states that AMM users do not interact with each other 
but with a pool of liquidity resting in a smart contract.  See LeXpunK Letter at 12-13.  This commenter 
states that forms of non-  firm trading interest – conditional orders and indications of interest – discussed in 
the Proposing Release, “do not align with AMMs provision of automated liquidity through the smart 
contract-based deterministic mechanisms,” where no party imposes such conditions or communicates such 
interest.  See id.  One commenter states that there are no “orders” on an AMM because, in contrast to a 
“centralized” platform which permits makers and takers to agree upon a price, an AMM sets the price.  See 
Delphi Digital Letter at 9-10. 

19 
 
under existing Rule 3b-16(c).
50
  And if established, non-discretionary method(s) under which 
orders of multiple buyers and sellers interact with each other are provided, such as through the 
provision of certain smart contract functionality, the activities would be covered under existing 
Rule 3b-16(a).  Accordingly, depending on the facts and circumstances, activities performed 
today using so-called “DeFi” trading systems could meet the criteria of existing Rule 3b-16 and 
thus constitute exchange activity.  The proposed amendments to Rule 3b-16(a) would not, in any 
way, change whether such activities constitute exchange activity under section 3(a)(1) and Rule 
3b-16(a). 
As discussed above, the Commission preliminarily believes that New Rule 3b-16(a) 
Systems, including some so-called “DeFi” systems, trade some amount of crypto asset securities, 
and would, under the proposed amendments to Exchange Act Rule 3b-16(a), be required to 
register as a national securities exchange or comply with the conditions of Regulation ATS.  
3. Custodial Services is Generally Not Relevant to Exchange Analysis 
Some commenters state that because so-called “DeFi” trading systems do not custody 
assets, they should not be subject to exchange regulation.
51
  One commenter states that trading 
conducted using “DeFi” trading systems does not involve users depositing assets with a central 
authority.
52
  Another commenter states that “custody” with reference to “DeFi” means self-
custody, which the commenter states does not fit “the Commission’s model, under which all 
 
50
  See 17 CFR 240.3b-16(c). 
51
  See a16z Letter at 8-9; GDCA Letter II at 11; DeFi Education Fund Letter at 6.  See also LeXpunK Letter 
at 4 n.18 (stating that no “‘custody’ or ‘transfer’ actually occurs” in the context of a “smart contract-based 
platform”).  
52
  See a16z Letter at 8-9.  The commenter cites a paper stating “one of the main advantages of decentralized 
exchanges over centralized exchanges is the ability for users to keep control of their private keys.”  See id. 
at 8 n.41 (citing Igor Makarov & Antoinette Schoar, Cryptocurrencies and Decentralized Finance (DeFi) 23 
(Brookings Paper on Econ. Activity, Conference Draft, 2022)).   

20 
 
exchanges are centralized.”
53
  Neither existing Exchange Act Rule 3b-16 nor Rule 3b-16, as 
proposed to be amended, requires an organization, association, or group of persons to provide 
custodial services to be considered an exchange under section 3(a)(1) of the Exchange Act and 
Rule 3b-16 thereunder.
54
  Thus, custodial services generally is not a relevant factor to the 
exchange analysis.    
4. Group of Persons as the Exchange 
Some commenters ask that the Commission explain which actor or group of actors would 
be responsible for compliance and how so-called “DeFi” trading systems should comply with 
exchange regulatory requirements.
55
  Some commenters express concerns that the proposed 
amendments to Exchange Act Rule 3b-16(a) would inappropriately apply to systems that purport 
not to involve intermediaries.
56
  One commenter states that providers of rule sets on how 
messages should be formed, stored, and relayed on a network are not like “intermediaries of the 
 
53
  See GDCA Letter II at 11.  See also DeFi Education Fund Letter at 6 (stating “DeFi protocols” present “no 
financial risk for users from broker activity or custody”).  One commenter also states that the Commission 
has provided no public guidance regarding how a digital asset communication protocol system could 
arrange for custody and settlement to the Commission’s satisfaction, in order to operate as an exchange.  
See GDCA Letter II at 10.  Further, some commenters question how exchange regulation will apply to 
trading activities that use “DeFi” and do not involve an intermediary for trading or to custody securities.  
See supra note 
52 and infra note 56. 
54
  The Customer Protection Rule requires a broker-dealer to promptly obtain and thereafter maintain physical 
possession or control of all fully-paid and excess margin securities it carries for the account of customers.  
See 17 CFR 240.15c3-3(b).  In 2020, the Commission issued a statement describing its position that, for a 
period of five years, special purpose broker-dealers operating under the circumstances set forth in the 
statement will not be subject to a Commission enforcement action on the basis that the broker-dealer deems 
itself to have obtained and maintained physical possession or control of customer fully-paid and excess 
margin crypto asset securities for purposes of 17 CFR 240.15c3-3(b)(1) (“Rule 15c3-3(b)(1)”) under the 
Exchange Act.   See Commission Statement on Custody of Digital Asset Securities by Special Purpose 
Broker-Dealers.  To date, no person has been approved to act as a special purpose broker-dealer custodying 
crypto asset securities.   
55
  See Letter from Paul Grewal, Chief Legal Officer, Coinbase Global, Inc., dated Apr. 18, 2022 (“Coinbase 
Letter”) at 7; a16z Letter at 3; Blockchain Association Letter II at 8. 
56
  See a16z Letter at 10; ConsenSys Letter at 8; DeFi Education Fund Letter at 3, 11; Blockchain Association 
Letter II at 3, 5; CoinList Letter at 2; Eisenbach Letter at 2.  For example, one commenter states that what it 
calls “decentralized” systems allow anyone to participate rather than rely on gatekeepers.  See ConsenSys 
Letter at 8. 

21 
 
traditional financial system” because “all they are doing is publishing particular arrangements of 
0s and 1s.”
57
  In addition, some commenters state that “DeFi” trading systems may be unable to 
comply with exchange regulatory requirements because they lack a central operator.
58
  Some 
commenters interpret Exchange Act Rule 3b-16(a), as proposed to be amended, to mean that 
each entity that performs any exchange function would need to register as a national securities 
exchange or comply with the conditions of Regulation ATS.
59
  For example, some commenters 
state that, under the proposed amendments to Exchange Act Rule 3b-16(a), exchange regulation 
could extend to persons including open source developers who contribute code to the software 
repositories where software for so-called “DeFi” trading systems is first published, persons who 
republish and share this information, and persons who connect to the peer-to-peer networks on 
which “DeFi”   activities takes place.
60
  One commenter states that the group of persons involved 
in a “DeFi” trading system – including developers, AMMs, and miners – could all comprise 
essential components of the market infrastructure.
61
  This commenter further states that the fact 
that these roles might be “decentralized” does not change that they would be considered a group 
 
57
  See Letter from Coin Center, dated Apr. 14, 2022 (“Coin Center Letter”) at 13.  Another commenter states 
that developers of “DeFi protocols” would not qualify as a “group of persons” because they “merely make 
tools available for parties to communicate.”  See D eFi Education Fund Letter at 15. 
58
  See, e.g., a16z Letter at 3; Coin Center Letter at 12; CoinList Letter at 2; GDCA Letter II at 11; Blockchain 
Association/DeFi Education Fund Letter at 5. 
59
 See, e.g., Letter from Robert Toomey, Managing Director and Associate General Counsel, Securities 
Industry and Financial Markets Association, dated June 13, 2022 (“SIFMA Letter II”) at 8. 
60
  See Coin Center Letter at 25.  See also Delphi Digital Letter at 9 (stating that participants could “number in 
the hundreds or thousands and be distributed all over the world”). 
61
  See Letter from James F. Tierney, Assistant Professor of Law, University of Nebraska College of Law, 
dated June 13, 2022 (“Tierney Letter”) at 2 (stating that these participants in “blockchain and other DeFi 
applications” all “might play analogous roles to in-house counsel, market makers, and back-office 
clearance roles in a traditional exchange setup”).  

22 
 
of persons who constitutes, maintains, or provides facilities for bringing together purchasers and 
sellers of securities.
62
   
The existence of smart contracts on a blockchain does not materialize in the absence of 
human activity or a machine (or code) controlled or deployed by humans.  The Commission 
understands that, typically, including for so-called “DeFi” trading systems, a single organization 
constitutes, maintains, or provides the market place or facilities for bringing together buyers and 
sellers of securities or otherwise performs with respect to securities the functions commonly 
performed by a stock exchange under section 3(a)(1) and Exchange Act Rule 3b-16 thereunder.
63
   
While it is common today for a single organization to provide a market place or facilities 
to bring together buyers and sellers of securities and meet the definition of an exchange, an 
exchange can also exist where a market place or facilities are provided by a group of persons, 
rather than a single organization.
64
  Under section 3(a)(1), and Exchange Act Rule 3b-16(a), the 
term exchange “means any organization, association, or group of persons, whether incorporated 
or unincorporated, which constitutes, maintains, or provides a market place or facilities for 
bringing together buyers and sellers of securities or perform with respect to securities the 
functions commonly performed by a stock exchange.”
65
  Thus, a group of persons, whether 
 
62
  See id. 
63
  See IOSCO Decentralization Finance Report at 8 n.13 (stating that “claims about decentralization for many 
projects may not hold up to scrutiny of the technical reality of what can be changed in the system, who can 
be involved in the decisions, and who actually is involved”).  
64
  The term “person” means a natural person, company, government, or political subdivision, agency, or 
instrumentality of a government.  15 U.S.C. 78c(a)(9).  
65
  In a recent decision, the United States Court of Appeals for the District of Columbia Circuit held that the 
term “group of persons” “certainly includes closely connected corporate affiliates” and noted that 
“[w]hether two or more persons are or may be acting in concert is likely the key consideration” in 
determining whether two or more entities may constitute a “group of persons” for purposes of the statute.  
Intercontinental Exch., Inc. v. SEC, 23 F.4th 1013, 1024 (D.C. Cir. 2022).  In addition, the court stated that 
it was “not suggest[ing] the term ‘group of persons’ is synonymous with corporate affiliation” and that 
“one corporation that is affiliated with but not controlled by another may or may not, depending upon the 
 

23 
 
incorporated or unincorporated, can together constitute, maintain, or provide a market place or 
facilities or perform with respect to securities the functions commonly performed by a stock 
exchange.  In determining which persons would be included in the group of persons that 
constitutes, maintains, or provides an exchange or performs with respect to securities the 
functions commonly performed by a stock exchange, important factors would generally include 
whether the persons act in concert in establishing, maintaining, or providing a market place or 
facilities for bringing together buyers and sellers of securities or in performing with respect to 
securities the functions commonly performed by a stock exchange, or exercise control, or share 
control, over aspects of such market place or facilities or the performance of functions 
commonly performed by a stock exchange.  In particular, when a group of persons exercises 
control, or shares control, over the organizational, financial, or operational aspects of a market 
place or facilities for bringing together buyers and sellers of securities, they are a group of 
persons that can be deemed to constitute, maintain, or provide the market place or facilities.
66
  
Whether persons act in concert or exercise control, or share control, requires an analysis 
of the activities of each person and the totality of facts and circumstances.  In assessing whether 
 
circumstances, be considered a ‘group of persons’” for the purposes of section 3(a)(1) of the Exchange Act.  
See id.  
66
  In the Proposing Release, the Commission explained that, depending on the activities of the persons 
involved with the market place or facilities, a group of persons, who may each perform a function of the 
market place that meets the criteria of Exchange Act Rule 3b-16, can together provide, constitute, or 
maintain a market place or facilities for bringing together buyers and sellers of securities and together meet 
the definition of exchange.  See Proposing Release at 15506 n.109.   See also Regulation ATS Adopting 
Release at 70891 (“. . . any subsidiary or affiliate of a registered exchange could not integrate, or otherwise 
link the alternative trading system with the exchange, including using the premises or property of such 
exchange for effecting or reporting a transaction, without being considered a ‘facility of the 
exchange.’”).  In determining whether affiliated persons would be a “group of persons” for the purposes of 
section 3(a)(1) of the Exchange Act and Rule 3b-16 thereunder, an important factor is whether the 
operations and management of the affiliated persons are separate.   For example, an affiliated entity of an 
exchange might not be considered a group of persons with that exchange if there is independent 
governance, management, and oversight between affiliated entities; prevention of strategic coordination or 
information sharing between the affiliated entities by way of information barriers and other procedures; 
separation of functions relating to technology, operations and infrastructure, sales and marketing, branding, 
and staffing; and avoidance of business links, such as routing, fees, billing, and membership. 

24 
 
a person would be acting in concert with a group of persons, one factor to consider, depending 
on other facts and circumstances, would be the extent to which a person acts with an agreement 
(formal or informal) to constitute, maintain, or provide a market place or facilities for bringing 
together buyers and sellers of securities or to perform with respect to securities a function 
commonly performed by a stock exchange.  For example, if one entity agrees with another entity 
to combine aspects of each other’s market places or facilities (e.g., order books, display 
functionalities, or matching engines) to bring together buyers and sellers of securities, both 
entities could be considered part of the group and thus an exchange. 
Control could occur through several means, including, among other things, ownership 
interest, corporate organizational structure and management, significant financial interest, or the 
ability to determine or modify participant access, securities traded, operations or trading policies, 
or non-discretionary methods of the market place or facilities.  For example, a person that can 
determine or modify, either individually or with others, the entering, storing, matching, or 
display of trading interest (e.g., a matching engine, a   smart contract) would be exercising control 
over the operations of the market place or facilities.  In addition, a person that can determine or 
modify, or grant or limit access to, for example, either individually or with others, the market or 
other data about the securities and securities transactions available on the market place or 
facility, order types, order interaction procedures (e.g., counterparty selection, segmentation), the 
priority or price at which trading interest will execute, or protocols for negotiation, would have 
the ability to determine trading policies or methods and exercise control over the market place or 
facilities.   

25 
 
The ability to exercise control over a market place or facilities is not limited solely to the 
operational control.
67
  Also, a person that, for example, either individually or with others, can 
determine or modify, with respect to the market place or facilities, the securities made available 
for trading or the access requirements and conditions for participation would be exercising 
control.  In addition, a person could exercise control by determining who can, and in what 
amount, share in profits or revenues derived from the market place or facilities, or by having the 
ability to enter into legal or financial agreements or arrangements on behalf of or in the name of 
the market place or facilities.  Depending on the facts and circumstances, significant holders of 
governance or other tokens, for example, could also be considered part of the group of persons 
and thus an exchange if they can control certain aspects of it.
68
   
Generally, an entity that engages a service provider or vendor to operate a market place 
or facilities for bringing together buyers and sellers of securities directs, manages, and oversees 
the activities of the service provider or vendor.  In this instance, the entity, not the service 
provider or vendor, controls the market place or facilities, and the entity is responsible for 
compliance with federal securities laws.  In certain circumstances, however, a service provider or 
vendor could exercise control, or share control, over aspects of the market place or facilities 
along with the entity that procured the service provider or vendor.  In that case, the service 
provider or vendor would be considered a person within a group of persons that constitutes, 
 
67
  See, e.g., Regulation ATS Adopting Release at 78052 (stating that a system that standardizes the material 
terms of instruments traded on the system will be considered to use established, non-discretionary 
methods). 
68
  This analysis would depend on facts and circumstances.  Whether a token holder can exercise control over 
a market place or facilities and be considered part of a “group of persons” would depend, for example, on 
the number of total token holders, or, if a holder’s votes are weighted proportionally to the size of their 
holdings of tokens, the size of their holdings, as well as what parameters the governance tokens are set to 
control (e.g., fundamental operational decisions, strategic direction of the company, budgetary decisions, 
and ability to change the underlying code), among other things.   

26 
 
maintains, or provides the market place or facilities for bringing together buyers and sellers of 
securities.
69
   
The group of persons that constitutes, maintains, or provides a market place or facilities 
for bringing together buyers and sellers of securities or performs with respect to securities the 
functions commonly performed by a stock exchange, and is thus an exchange, would collectively 
have the responsibility for compliance with federal securities laws.  A group of persons must 
consider how they will comply with the Exchange Act registration requirements given their 
activities, which can include, but are not limited to, designating a member of the group,
70
 to 
register the group or forming an organization to register as an exchange or, to operate as an ATS, 
registering as a broker-dealer and becoming a member of Financial Industry Regulatory 
Authority (“FINRA”) to ensure compliance with the requirements of the Exchange Act, 
Commission rules, and FINRA rules.
71
   
 
69
  See Proposing Release at 15548.  This would not encompass purely administrative items, such as human 
resources support, or basic overhead items, such as phone services, electricity, and other utilities.  In the 
Proposing Release, the Commission recognized that an ATS may engage an entity other than the broker-
dealer operator to perform an operation or function of the ATS or a subscriber may be directed to use an 
entity to access a service of the ATS, such as order entry, disseminating market data, or display, for 
example.  See Proposing Release at 15548.  In such instances, the ATS must ensure that the entity 
performing the ATS function complies with Regulation ATS with respect to the ATS activities performed.  
See id. 
70
  The group of persons would be collectively responsible for ensuring that the designated member of the 
group fulfills its regulatory responsibilities. 
71
  An ATS that complies with Regulation ATS and registers as a broker-dealer would be required to, among 
other things, comply with the anti-money laundering and countering the financing of terrorism (AML/CFT) 
obligations under the Bank Secrecy Act.  31 CFR 1023.210; 31 CFR 1023.320.  The Bank Secrecy Act is 
codified at 31 U.S.C. 5311-5314; 5316-5332 and 12 U.S.C. 1829b, 1951-1959.  Additionally, sections 5(a) 
and 5(c) of the Securities Act of 1933 (“Securities Act”) generally prohibit any person, including broker-
dealers, from selling a security unless a registration statement is in effect or has been filed with the 
Commission as to the offer and sale of such security.   See 15 U.S.C. 77e(a) and (c).   A New Rule 3b-16(a) 
System that operates as an ATS, which is a registered broker-dealer, could be subject to liability under 
section 5 of the Securities Act for facilitating the sale of a security by its customer on the ATS if the sale of 
such security is not registered or an exemption from the registration provisions does not apply.   Section 
4(a)(4) of the Securities Act provides an exemption for “brokers’ transactions, executed upon customers’ 
orders on any exchange or in the over-the-counter market but not the solicitation of such orders.”   See 15 
U.S.C. 77d(a)(4).   To rely on this exemption, a broker-dealer is required to conduct a “reasonable inquiry” 
into the facts surrounding a proposed unregistered sale of securities before selling the securities to form 
 

27 
 
5. Group of Persons and So-Called “DeFi” Systems  
One commenter states users of what it characterizes as “DeFi” protocols should not be 
considered part of a group of persons as they act independently of each other.
72
  The commenter 
states that developers and users of “DeFi” protocols would not qualify as a “group of persons” 
because the developers have no ongoing relationship with either market participants or other 
financial providers and merely make tools available for parties to communicate, and users are 
acting independently of each other.
73
  Another commenter describes that the “DeFi protocols” 
deploying AMM functionality rely on many distinct groups or participants, which may not be 
“affiliated or extrinsically coordinated” with one another.
74
   
Trading on so-called “DeFi” systems can involve multiple actors.  These actors can 
include, for example, the provider(s) of the DeFi application or user interface, developers of 
AMMs or other DLT code, decentralized autonomous organizations (“DAO”), validators or 
miners,
75
 and issuers or holders of governance or other tokens.  Often, a single organization 
constitutes, maintains, or provides a DLT-based market place or facilities for bringing together 
buyers and sellers of securities or performs with respect to securities the functions commonly 
performed by a stock exchange; however, a group of persons can likewise do so.  As indicated 
 
reasonable grounds for believing that a selling customer’s part of the transaction is exempt from section 5 
of the Securities Act.   The Commission has stated that broker-dealers “have a responsibility to be aware of 
the requirements necessary to establish an exemption from the registration requirements of the Securities 
Act and should be reasonably certain such an exemption is available.”   In the Matter of World Trade 
Financial Corp., Securities Exchange Act Release No. 66114, 13 (Jan. 6, 2012) (quoting Stone Summers & 
Co., Securities Exchange Act Release No. 9839, 3 (Nov. 3, 1972)).    
72
  See DeFi Education Fund Letter at 15.  
73
  See id. 
74
  See Delphi Digital Letter at 9 (describing that “[t]hey do not co-own assets or operate a single enterprise 
for profit, do not know each other’s identities, and have diverse (and often competing) motivations”). 
75
  Validators and miners verify transactions on the underlying blockchain and the function they perform is not 
only with respect to a particular trading system.  Validators and miners use a consensus mechanism (e.g., 
proof-of-stake or proof-of-work) to verify and add transactions to a distributed ledger in exchange for 
crypto assets.  See Crypto-Assets Treasury Report at 11-12.   

28 
 
above, one possible avenue for determining which persons comprise a group of persons can 
include whether such persons act in concert to establish, provide, or maintain a market place or 
facilities for securities or to perform with respect to securities the functions commonly 
performed by a stock exchange, or exercise control, or share control, over aspects of the market 
place or facilities or the performance of functions commonly performed by a stock exchange.
76
  
These actors can form a group of persons if they act in concert to perform, or exercise control or 
share control over, different functions of a market place or facilities for bringing together buyers 
and sellers of securities that, taken together, satisfy the elements of existing Exchange Act Rule 
3b-16(a) or Rule 3b-16(a), as proposed to be amended.   
As discussed above, in assessing whether a person would be acting in concert with a 
group of persons, one factor to consider, depending on other facts and circumstances, would be 
the extent to which a person acts with an agreement (formal or informal) to perform a function of 
a market place or facilities for bringing together buyers and sellers of securities.
77
  A software 
developer who, acting independently and separate from an organization, publishes or republishes 
code without any agreement (formal or informal) with any person for that code to be used for a 
function of a market place or facilities for bringing together buyers and sellers of securities may 
be less likely to be acting in concert to provide a market place or facilities for bringing together 
buyers and sellers.
78
  This could be the case even if the software developer’s code is 
 
76
  See supra note 66. 
77
  See supra section II.B.4. 
78
  See, e.g., LeXpunK Letter at 15 (requesting that the Commission clarify that persons who “write and 
publish smart contract code as a hobby or business, whether to an open-source repository otherwise, and 
may not otherwise be subject to the jurisdiction of the U.S.” are not intended to be captured by the 
Proposed Rules).  If a software developer receives compensation for publishing, independently from an 
organization, code for a trading facility to match orders or a protocol for buyers and sellers to negotiate a 
trade, the software developer could be acting in concert with a group of persons to provide a market place 
or facilities for bringing together buyers and sellers. 

29 
 
subsequently adopted and implemented into a market place or facilities for securities by an 
unrelated person.  Whether the activities of actors amount to a group of persons requires an 
analysis of the totality of facts and circumstances and the activities of each actor.  If the activities 
of any combination of actors constitute, maintain, or provide, together, a market place or 
facilities for bringing together buyers and sellers for securities or perform with respect to 
securities a function commonly performed by a stock exchange, they could today be considered a 
group of persons and thus an exchange under section 3(a)(1) of the Exchange Act and Rule 3b-
16 thereunder and therefore be required to register as an exchange under section 5 of the 
Exchange Act.
79
   
One commenter states that attributing the function of constituting, maintaining, or 
providing an exchange to persons who initially created or deployed the system’s code may not be 
practicable or advance the Commission’s policy objectives because according to the commenter, 
the system, once deployed, typically cannot be significantly altered or controlled by any such 
persons.
80
  A smart contract deployed to, and run on, a blockchain is typically accompanied by 
other functionality to bring together buyers and sellers of securities (e.g., a user interface or 
 
79
  See, e.g., Regulation ATS Adopting Release at 70852 (“[I]f an organization arranges for separate entities to 
provide different pieces of a trading system, which together meet the definition contained in paragraph (a) 
of Rule 3b-16, the organization responsible for arranging the collective efforts will be deemed to have 
established a trading facility.”).  See also Proposing Release at 15506 (stating the proposed change to use 
the phrase “makes available” is intended to make clear that, in the event that a party other than the 
organization, association, or group of persons performs a function of the exchange, the function performed 
by that party would still be captured for purposes of determining the scope of the exchange under Exchange 
Act Rule 3b-  16).  The Proposing Release also stated that, “[d]epending on the activities of the persons 
involved with the market place, a group of persons, who may each perform a part of the 3b-16 system, can 
together provide, constitute, or maintain a market place or facilities for bringing together purchasers and 
sellers of securities and together meet the definition of exchange.  In such a case, the group of persons 
would have the regulatory responsibility for the exchange.”  See id. at 15506 n.109.  See also infra   notes 
101-103 and accompanying text. 
80
  See Coinbase Letter at 6.  Likewise, some commenters state that software developers cannot modify or 
control the code they have developed after it is launched.  See Delphi Digital Letter at 8-9; Blockchain 
Association/DeFi Education Fund Letter at 5; DeFi Education Fund Letter at 11; Stinson Letter; Letter 
from Roman Scher, dated Apr. 18, 2022. 

30 
 
website), and these functionalities can be provided and maintained by more than one party.  If, 
for example, an organization deploys a smart contract that the organization cannot significantly 
alter or control but constitutes a market place for securities under existing Exchange Act Rule 
3b-16 or Rule 3b-16, as proposed to be amended, then that organization would be an exchange 
and would be responsible for compliance with federal securities laws for that market place.
81
  
Given that such a market place could be publicly available to bring together buyers and sellers of 
securities, requiring the organization to be responsible in this case would advance the 
Commission’s policy objectives by ensuring the exchange complies with federal securities laws 
and regulations, including, among other things, the oversight, investor protection, and fair and 
orderly market principles applicable to registered exchanges and ATSs.   
6. Feasibility of Compliance with Exchange Regulatory Requirements 
Some commenters state that so-called “ DeFi” trading systems may have difficulty 
complying with certain exchange regulatory requirements.
82
  For example, one commenter states 
it is unclear that any party would have the necessary information to comply with Regulation 
ATS.
83
  In addition, some commenters question how DeFi trading systems would comply with 
broker-dealer requirements.
84
   
 
81
  See also supra 78 and accompanying text (discussing “group of persons” involving a software developer 
acting independently and separate from an organization).   
82
  See, e.g., a16z Letter at 3; CoinList Letter at 2; GDCA Letter II at 8, 10. 
83
  See a16z Letter at 15 (stating that there is no central operator of a DeFi exchange that could complete Form 
ATS or comply with periodic reporting requirements and that those who make available AMMs cannot 
identify, track the orders of, or report to the Commission information about users).   
84
  See, e.g., GDCA Letter II at 8; Blockchain Association Letter II at 8; Letter from Lilya Tessler, Founder 
and Co-Chair, Digital Asset Regulatory & Legal Alliance, Kristin Boggiano, Founder and Co-Chair, 
Digital Asset Regulatory & Legal Alliance, Lee Schneider, Co-Founder, Global Blockchain Convergence, 
Cathy Yoon, Co-Founder, Global Blockchain Convergence, Renata Szkoda, Chairwoman, Global Digital 
Asset & Cryptocurrency Association, dated Apr. 14, 2022 (“DARLA, GBC, and Global DCA Letter”) at 9. 

31 
 
The investor protection, fair and orderly markets, transparency, and oversight benefits of 
the federal securities laws are just as relevant to a system that uses DLT and meets the existing 
criteria of Exchange Act Rule 3b-16 and Rule 3b-16, as proposed to be amended, as to any other 
system that meets the criteria under the exchange definition.  From the Commission’s 
experience, systems that currently are registered as national securities exchanges or comply with 
the conditions of Regulation ATS differ with respect to structure, participants, and established, 
non-discretionary methods and apply many assorted technologies to bring together buyers and 
sellers of various types of securities.  The federal securities laws apply equally to systems that 
trade securities, use DLT, and meet the criteria of Rule 3b-16 as to any other exchange.  The 
federal securities laws are flexible and the use of DLT, or any other technology, does not make 
compliance incompatible with the federal securities laws.
85
   
One commenter states that “many Communication Protocol Systems are neither ‘brokers’ 
nor ‘dealers’ as defined by the Exchange Act because they do not effect securities transactions,” 
which the commenter equates to “order execution,” and “do not engage in the business of buying 
and selling securities.”
86
  The commenter states accordingly that the option to qualify as an ATS 
is not available for Communication Protocol Systems under current law, as only a registered 
broker-dealer may qualify as an ATS.
87
   
 
85
  See DAO 21(a) Report (stating that “the automation of certain functions through [distributed ledger or 
blockchain] technology ‘smart contracts,’ or computer code, does not remove conduct from the purview of 
the U.S. federal securities laws” and that the requirements of the U.S. federal securities laws “apply to 
those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional 
company or a decentralized autonomous organization, regardless whether those securities are purchased 
using U.S. dollars or virtual currencies and regardless whether they are distributed in certificated form or 
through distributed ledger technology”). 
86
  See GDCA Letter II at 11-13.   
87
  See id. 

32 
 
Regulation ATS establishes a regulatory framework for ATSs.  An ATS meets the 
definition of “exchange” under existing Exchange Act Rule 3b-16(a) and Exchange Act Rule 3b-
16(a), as proposed to be amended, but is not required to register as a national securities exchange 
if the ATS complies with the conditions of Regulation ATS, which include registering as a 
broker-dealer.  Section 3(a)(4)(A) of the Exchange Act defines “broker” as “any person engaged 
in the business of effecting transactions in securities for the accounts of others.”
88
  The question 
of whether a person is a broker within the meaning of section 3(a)(4) turns on the facts and 
circumstances of the matter.  Under section 3(a)(4)(A), the terms “engaged in the business” and 
“effecting transactions” are not defined by statute; however, effecting transactions in securities 
includes more than just executing trades or forwarding securities orders to a broker-dealer for 
execution.
89
  In particular, the Commission stated that effecting securities transactions can 
include participating in the transactions through routing or matching orders, or facilitating the 
execution of a securities transaction.
90
  In addition, courts have stated that a person may be found 
to be acting as a “broker” if the person participates in securities transactions “at key points in the 
 
88
  15 U.S.C. 78c(a)(4)(A).  Section 3(a)(5)(A) defines “dealer” as any person engaged in the business of 
buying and selling securities, with certain exceptions, for such person’s own account through a broker or 
otherwise.  15 U.S.C. 78c(a)(5)(A).   
89
  See Securities Exchange Act Release No. 44291 (May 11, 2001), 66 FR 27760, 27772-73 (May 18, 2001) 
(stating that effecting securities transactions can include participating in the transactions through (1) 
identifying potential purchasers of securities; (2) screening potential participants in a transaction for 
creditworthiness; (3) soliciting securities transactions; (4) routing or matching orders, or facilitating the 
execution of a securities transaction; (5) handling customer funds and securities; and (6) preparing and 
sending transaction confirmations (other than on behalf of a broker-dealer that executes the trades).  
Further, the Commission stated in the Regulation ATS Adopting Release that a trading system that falls 
within the Commission’s interpretation of “exchange” in Rule 3b-16 will still be considered an “exchange” 
even if it matches two trades and routes them to another system or exchange for execution and that whether 
or not the actual execution of the order takes place on the system is not a determining factor of whether the 
system falls under Exchange Act Rule 3b-16.  See Regulation ATS Adopting Release at 70852. 
90
  See Securities Exchange Act Release No. 44291 (May 11, 2001), 66 FR 27760, 27772-73 (May 18, 2001). 

33 
 
chain of distribution.”
91
  Accordingly, the Commission believes that a New Rule 3b-16(a) 
System that seeks to operate as an ATS could register as a broker-dealer. 
 Given that the Proposing Release applies to New Rule 3b-16(a) Systems that use DLT, 
the Commission seeks responses to the following questions: 
4. Which, if any, activities performed on so-called “DeFi” trading systems meet the 
criteria of Rule 3b-16(a), as proposed to be amended?  For example, does the use of 
AMMs alone bring together multiple buyers and sellers of securities through the use 
of non-firm trading interest?  Please explain.  Please identify any relevant data, 
literature, or other information that could assist the Commission in analyzing this 
issue. 
5. Please give examples of New Rule 3b-16(a) Systems for crypto asset securities that 
use DLT or are so-called “DeFi” systems.  Approximately how many such systems 
exist?  Please identify the types of non-firm trading interest used and how participants 
use non-firm trading interest on such systems.  Please explain what these systems 
trade (crypto asset securities or crypto assets) and the type of participants (e.g., retail 
or institutional).  How do participants on a New Rule 3b-16(a) System for crypto 
asset securities that use “DeFi” systems, as characterized by commenters, negotiate 
trades for crypto asset securities?  Please identify any relevant data, literature, or 
other information that could assist the Commission in analyzing these issues.   
 
91
  See Mass. Fin. Serv., Inc. v. Sec. Inv. Prot. Corp., 411 F. Supp. 411, 415 (D. Mass. 1976), aff’d 545 F.2d 
754 (1st Cir. 1976).  See also SEC v. Nat’l Exec. Planners, Ltd., 503 F. Supp. 1066, 1073 (M.D.N.C. 1980).  
Courts have also stated that in determining whether a person has acted as a broker, several factors are 
considered, including “whether the person: (1) actively solicited investors; (2) advised investors as to the 
merits of an investment; (3) acted with a ‘certain regularity of participation in securities transactions;’ and 
(4) received commissions or transaction-based remuneration.”  See, e.g., SEC v. U.S. Pension Trust Corp., 
2010 WL 3894082, *20-21 (S.D. Fla. 2010). 

34 
 
6. Would an organization, association, or group of persons that is a New Rule 3b-16(a) 
System and uses DLT to trade crypto asset securities likely elect to register as a 
national securities exchange or comply with the conditions of Regulation ATS?   
Please explain. 
7. What are common characteristics of New Rule 3b-16(a) Systems for crypto asset 
securities that use DLT?  Further, what are common characteristics of New Rule 3b-
16(a) Systems for crypto asset securities described as “DeFi” trading systems?  Are 
there any characteristics that heighten the need for investor protection and market 
integrity under the exchange regulatory framework?   
8. What are the various governance structures (e.g., the role of governance token issuers 
or holders or of DAOs) of trading systems that use DLT and how can such structures 
administer regulatory programs or respond to regulatory oversight regarding activities 
on the system?  What activities do governance token issuers or holders or DAOs 
undertake regarding the governance and operation of trading systems that use DLT?  
Is there any concentration in voting and if so, how does that arise?  Are voting rights 
of governance tokens or DAOs capable of being assigned or delegated and, if so, how 
is that done?  How are changes to trading systems that use DLT effected and how are 
changes proposed to holders of voting rights under governance tokens or DAOs?  
Under what circumstances should governance or other token issuers or holders or 
DAOs be responsible for an exchange’s regulatory compliance? 
9. As noted in the above requests for comment in this section, the Commission seeks 
additional data and other information about the use of DLT as it relates to New Rule 
3b-16(a) Systems.  Please provide any such data, literature, or other information 

35 
 
about the topics noted above or any other issue that would be relevant to the 
Commission’s analysis of the Proposed Rules. 
III. Proposed Amendments to Exchange Act Rule 3b-16 Generally 
A. Performs Functions Commonly Performed by a Stock Exchange 
Some commenters state that the Proposing Release did not demonstrate that systems that 
offer the use of non-firm trading interest and provide non-discretionary protocols “perform[] 
with respect to securities the functions commonly performed by a stock exchange as that term is 
generally understood,” and assert that such a finding is required under the statutory definition of 
“exchange” under section 3(a)(1) of the Exchange Act.
92
  In addition, some commenters state 
that systems that offer the use of non-firm trading interest and provide non-discretionary 
protocols to bring together buyers and sellers of securities do not perform functions commonly 
performed by a stock exchange, as that term is generally understood.
93
   
The statutory definition of “exchange” is written in the disjunctive: “a market place or 
facilities for bringing together purchasers and sellers of securities or for otherwise performing 
with respect to securities the functions commonly performed by a stock exchange as that term is 
generally understood” (emphasis added).
94
  Thus, if an organization, association, or group of 
 
92
  See, e.g., ConsenSys Letter at 14-15; DeFi Education Letter at 13; Coinbase Letter at 3 n.9.  One of the 
commenters also states that in the Regulation ATS Adopting Release, the Commission assumed that to 
meet the statutory definition, the system must be “generally understood” to be performing stock exchange 
functions and “anchored” that rulemaking explicitly within the statutory definition.  See Coinbase Letter at 
3 n.10.  In addition, a commenter opines that “[m]erely indicating a possible interest in buying or selling a 
security without mentioning the quantity or pricing terms that would otherwise characterize an order would 
allow the Commission to deem a platform an exchange despite it not ‘performing with respect to securities 
the functions commonly performed by a stock exchange.’”  Blockchain Association Letter II at 4. 
93
  See, e.g., Coinbase Letter at 3; ConsenSys Letter at 13-14; DARLA, GBC, and Global DCA Letter at 3-6; 
Letter from Gregory Babyak, Global Head of Regulatory Affairs and Gary Stone, Regulatory Analyst and 
Market Structure Strategist, Bloomberg L.P., dated Apr. 18, 2022 (“Bloomberg Letter I”) at 22. 
94
  See 15 U.S.C. 78c(a)(1); Regulation ATS Adopting Release at 70900 n.544 (stating “the statutory 
definition of ‘exchange’ is written in the disjunctive”).  Section 3(a)(1) of the Exchange Act states that an 
“exchange” includes any organization, association, or group of persons that constitutes, maintains, or 
 

36 
 
persons constitutes, maintains, or provides a market place or facilities for bringing together 
purchasers and sellers of securities, it would be an “exchange”; it need not be demonstrated that 
the organization, association, or group of persons also performs functions commonly performed 
by a stock exchange as that term is generally understood.  As discussed in the Proposing Release, 
systems today that offer the use of non-firm trading interest and provide non-discretionary 
protocols can constitute, maintain, or provide a market place or facilities for bringing together 
buyers and sellers of securities and meet the criteria of Exchange Act 3b-16 as proposed to be 
amended.
95
   
B. Makes Available Non-Discretionary Methods 
In the Proposing Release, the Commission proposed to amend Exchange Act Rule 3b-
16(a) to provide that an organization, association, or group of persons would be considered to 
constitute, maintain, or provide an exchange if it: brings together buyers and sellers of securities 
using trading interest; and makes available established, non-discretionary methods (whether by 
providing a trading facility or communication protocols, or by setting rules) under which buyers 
and sellers can interact and agree to the terms of a trade.  The Commission proposed, among 
other changes, to replace the term “uses” with the term “makes available” in 17 CFR 240.3b-
16(a)(2) (“Rule 3b-16(a)(2)”),
96
 and to add “communication protocols” as an example of an 
established, non-discretionary method that an organization, association, or group of persons can 
 
provides a market place or facilities for bringing together purchasers and sellers of securities or for 
otherwise performing with respect to securities the functions commonly performed by a stock exchange as 
that term is generally understood.  Functions commonly performed by a stock exchange as that term is 
generally understood include, among other things, SRO functions and the listing of securities, by, for 
example, establishing or enforcing qualitative or quantitative listing standards.  See Regulation ATS 
Adopting Release at 70880 (stating that “[r]egistered exchanges are able to establish listing standards, 
which may promote investor confidence in the quality of the securities traded on the exchange”). 
95
  See Proposing Release at section II.C.  
96
  See id. at 15506. 

37 
 
provide to bring together buyers and sellers of securities.
97
  The Commission received comment 
on the application of these proposed changes to all securities, including comments requesting the 
Commission to provide further consideration and opportunity for comments before adopting the 
proposed changes.
98
  The Commission is now soliciting further comment on certain Proposed 
Rules. 
In the Proposing Release, the Commission discussed two reasons it proposed to replace 
“uses established, non-discretionary methods” with the phrase “makes available established, non-
discretionary methods.”  First, the Commission stated that the proposed change to use the term 
“makes available” rather than “uses” is designed to capture established, non-discretionary 
methods that an organization, association, or group of persons may provide, whether directly or 
indirectly, for buyers and sellers to interact and agree upon terms of a trade.
99
  Unlike systems 
that “use” established non-discretionary methods to match buyers and sellers, communication 
protocols systems offer a different method for bringing together buyers and sellers by providing 
protocols that allow participants to interact, negotiate, and come to an agreement.
100
   
Second, the term “makes available” was intended to make clear that, in the event that a 
party other than the organization, association, or group of persons performs a function of the 
exchange, the function performed by that party would still be captured for purposes of 
determining the scope of the exchange under Exchange Act Rule 3b-16.
101
  The Commission has 
previously stated that it will attribute the activities of a trading facility to a system if that facility 
 
97
  See id. at 15506-07. 
98
  See Bloomberg Letter I at 13-15; SIFMA Letter II at 7. 
99
  See Proposing Release at 15506. 
100
  See id. 
101
  See id. 

38 
 
is offered by the system directly or indirectly (such as where a system arranges for a third party 
or parties to offer the trading facility).
102
  The Commission also recognized how a system may 
consist of various functionalities, mechanisms, or protocols that operate collectively to bring 
together the orders for securities of multiple buyers and sellers using non-discretionary methods 
under the criteria of Rule 3b-16(a), and how, in some circumstances, these various 
functionalities, mechanisms, or protocols may be offered or performed by another business unit 
of the broker-dealer operator or by a separate entity.
103
  The Commission stated that these 
principles apply equally to an organization, association, or group of persons that arranged with 
another party to provide, for example, a trading facility or communication protocols, or parts 
thereof, to bring together buyers and sellers and perform a function of a system under Rule 3b-
16.
104
  Consistent with the principles in the Regulation ATS Adopting Release, the term “makes 
available” would help ensure that the investor protection and fair and orderly markets provisions 
of the exchange regulatory framework apply to the activities performed through all 
functionalities, mechanisms, or protocols of a market place that meet the criteria of Rule 3b-
16(a), notwithstanding whether those activities are performed by a party other than the 
organization that provides the market place.
105
   
Commenters state that the proposed use of the term “makes available” would extend the 
scope of the exchange definition to a broad set of entities that provide services to a system and its 
participants and potentially create uncertainty and ambiguity.
106
  One commenter states that the 
 
102
  See id. (citing Regulation ATS Adopting Release at 70852). 
103
  See id. 
104
  See id. 
105
  See id.  See also Regulation ATS Adopting Release at 70851-52. 
106
  See, e.g., Letter from Gregory Babyak and Gary Stone, Regulatory Affairs, Bloomberg L.P., dated Sept. 
16, 2022 (“Bloomberg Letter II”) at 2; Letter from Elisabeth Kirby, Head of U.S. Market Structure, 
 

39 
 
Proposing Release opens up the possibility that systems interacting with the ATS are themselves 
separate exchanges and questions when two or more unrelated entities might be viewed as 
collectively providing the services of an exchange.
107
  One commenter expresses concern that the 
Proposed Rules would broaden the definition of “exchange” to include entities that do not 
themselves take an active role in matching orders but instead contribute in some manner to the 
efforts of buyers and sellers to identify each other and arrange trades, and that anyone who 
contributes to the existence of trading protocols could be considered to make them available.
108
  
Another commenter states that the Proposed Rules do not address “open-architecture platforms 
that integrate with or embed in a third-party application” and asks whether such activity would 
constitute making available communication protocols.
109
  One commenter states that the 
proposed term “makes available” would expand the groups of persons subject to the Exchange 
Act to include those who expressly do not fall under the statutory language of section 3(a)(1)—
“a party other than the organization, association, or group of persons” that performs a function 
on the exchange.
110
  In addition, one commenter states the definition should only include entities 
that make available systems “with the intent to profit from trades to which they are not a party” 
 
Tradeweb Markets, Inc., dated Apr. 18, 2022 (“Tradeweb Letter”) at 5; Letter from Ken McGuire, 
President, Aditum Alternatives & Aditum Asset Management, dated Feb. 21, 2022 (“Aditum Letter”) at 2; 
Letter from Gene Hoffman, President & Chief Operating Officer, Chia Network, dated Apr. 16, 2022 
(“Chia Network Letter”) at 4-7; DARLA, GBC, and Global DCA Letter at 6-7; ConsenSys Letter at 13, 16-
17; Blockchain Association Letter II at 8-9; ADAM Letter II at 8, 16; Eisenbach Letter at 2. 
107
  See SIFMA Letter II at 9 n.23. 
108
  See ConsenSys Letter at 16-17.  See also DeFi Education Fund Letter at 9-10 (stating that “systems 
providing communication and other financial technology adjacent to trading, such as bespoke direct 
messaging or market information services, could be captured under the overbroad ‘makes available’ 
standard”). 
109
  See Letter from Corinna Mitchell, General Counsel, Symphony Communication Services, dated Apr. 18, 
2022 at 4.  See also DeFi Education Fund Letter at 9-10 (stating the “makes available” language could 
subject software developers to exchange regulation “solely on the basis of having lines of their code 
subsequently used by unrelated parties”); Tradeweb Letter at 5 (stating that the proposed language might 
affect various forms of software tools widely used in the securities industry). 
110
  See Blockchain Association Letter II at 4-5 (quoting the Proposing Release at 15506). 

40 
 
and exclude those that integrate software available in the public domain and perform the role 
without a profit motive.
111
   
Request for Comment 
10. In the Regulation ATS Adopting Release, the Commission stated that it would 
“attribute the activities of a trading facility to a system if that facility is offered by the 
system directly or indirectly (such as where a system arranges for a third party or 
parties to offer the trading facility).”
112
  In explaining the term “makes available” in 
the Proposing Release, the Commission stated that it was “designed to capture 
established, non-discretionary methods that an organization, association or groups of 
person may provide, whether directly or indirectly.”
113
  To ensure that an exchange 
function performed by a party is appropriately captured under Exchange Act Rule 3b-
16, should the Commission adopt alternative language to “makes available”?  Please 
explain.  For example, should the Commission adopt “Uses established, non-
discretionary methods (whether by providing, directly or indirectly, a trading 
facility...)”?  Would the addition of the phrase “directly or indirectly” align Rule 3b-
16 more closely with prior Commission statements in the Regulation ATS Adopting 
Release
114
 and focus the rule text on a function that a party performs in the provision 
of an established, non-discretionary method to bring together buyers and sellers?  
Would the phrase “directly or indirectly” reduce commenters’ concerns about the 
proposed “makes available” language being overbroad?  Why or why not?  What, if 
 
111
  See Aditum Letter at 2. 
112
  See Regulation ATS Adopting Release at 70852. 
113
  See Proposing Release at 15506.  
114
  See id. (citing Regulation ATS Adopting Release at 70852). 

41 
 
any, limiting principles should be applied to determining when a person provides 
“directly or indirectly” a trading facility or communication protocols (or “negotiation 
protocols”)?
115
  Please explain. 
11. The Commission proposed to remove the term “uses” and insert the term “makes 
available” before “established, non-discretionary methods” because the Commission 
proposed to include as an established, non-discretionary method communication 
protocols under which buyers and sellers can interact and agree to the terms of a 
trade.  Communication protocols would be in addition to a trading facility, which is 
an existing established, non-discretionary method under existing Exchange Act Rule 
3b-16(a)(2) and is used by the provider of the exchange to match buyers and sellers.  
Instead of the terms “uses” and “makes available,” should the Commission adopt 
amendments to Exchange Act Rule 3b-16(a)(2) that state “[E]stablishes non-
discretionary methods (whether by providing, directly or indirectly, a trading facility 
or...)”?  The addition of the term “establishes” would adhere to the concept of 
“established” in existing Exchange Act Rule 3b-16(a)(2) and be consistent with the 
Commission’s explanation in the Regulation ATS Adopting Release that the person 
who establishes non-discretionary methods is dictating the terms of trading among 
buyers and sellers on the system.
116
  For example, an organization that establishes a 
non-discretionary method would be providing a trading facility or providing 
communication protocols (or “negotiation protocols”
117
) or setting rules for buyers 
and sellers to interact and agree upon the terms of a trade.   
 
115
  See infra Request for Comment #13. 
116
  See Regulation ATS Adopting Release at 70850. 
117
  See infra Request for Comment #13.  

42 
 
C. Non-Discretionary Method: Communication Protocols 
In the Proposed Rules, the Commission proposed to add “communication protocols” to 
Exchange Act Rule 3b-16(a) as a non-discretionary method that an organization, association, or 
group of persons could provide for buyers and sellers to interact and agree upon the terms of a 
trade.
118
  In the Proposing Release, the Commission explained that communication protocols, 
which can be applied to various technologies and connectivity, are provided along with the use 
of non-firm trading interest (as opposed to firm orders) to prompt and guide buyers and sellers to 
communicate, negotiate, and agree to the terms of the trade.
119
  The Commission also provided 
examples of trading systems that function as market places or facilities for securities by 
providing communication protocols.
120
  The Commission provided an example of an entity 
making available a chat feature that has the additional requirement that certain information be 
included in a chat message (e.g., price, quantity) and also setting parameters and structure 
designed for participants to communicate about buying or selling securities as a system that 
would have established communication protocols.
121
  The Commission also explained what 
would not be a communication protocol system for purposes of the Proposed Rules.
122
   
The Commission received comment that the term “communication protocol” is too broad 
and vague and that it is unclear what activities or entities would be classified as communication 
 
118
  See Proposing Release at 15507. 
119
  Id. 
120
  See id. at 15500-01.  These trading systems could include, among others, RFQ systems, stream axes, 
conditional order systems, and bilateral negotiation systems. 
121
  See id. at 15507. 
122
  See, e.g., id.  For example, the Commission stated that it did not intend for communication protocols to 
include systems that only provide the connectivity or technology that allows buyers and sellers to 
communicate (such as utilities or providers of stand-alone electronic web chat) without also establishing 
non-discretionary methods that govern how the communications are allowed to proceed as participants 
agree to the terms of a trade.  See id. 

43 
 
protocol systems.
123
  Commenters suggest that the Commission should define the term 
“communication protocol system” to avoid uncertainty as to who is included or not included 
under its scope.
124
  Commenters state that the broad concept of a communication protocol system 
could capture various types of technologies used by market places for securities, including, for 
example, front-end graphical user interfaces (“GUIs”), web chat providers,
125
 primary market 
communication systems,
126
 software solutions,
127
 or trading desks of a broker-dealer.
128
  
Commenters state that the uncertainty could give the impression that employing the term 
expands the scope of exchange regulation to all communication methods.
129
   
Request for Comment 
12. In existing Exchange Act Rule 3b-16(a)(2), non-discretionary methods include 
providing a trading facility or setting rules governing the interaction of orders.  
“Trading facility” and “setting rules” are not defined in the rule text but are explained 
in the Regulation ATS Adopting Release and the Commission provided examples of 
 
123
  See, e.g., Letter from Lindsey Weber Keljo, Head of Asset Management Group, William C. Thum, 
Managing Director and Assistant General Counsel, Securities Industry and Financial Market Association, 
dated Apr. 18, 2022 (“SIFMA AMG Letter”) at 6; Letter from Charles V. Callan, Broadridge Financial 
Solutions, Inc., dated Apr. 18, 2022 (“Broadridge Letter”) at 2; Letter from Douglas A. Cifu, Chief 
Executive Officer, Virtu Financial, Inc., dated Apr. 18, 2022 (“Virtu Letter”) at 11; Letter from Jennifer W. 
Han, Managed Funds Association, dated Apr. 18, 2022 (“MFA Letter”) at 7-10; Letter from David R. 
Burton, Senior Fellow in Economic Policy, The Heritage Foundation, dated Apr. 18, 2022 (“Burton 
Letter”) at 2.   
124
  See, e.g., Healthy Markets Letter at 6; Letter from Scott Pintoff, General Counsel, MarketAxess, dated Apr. 
18, 2022 (“MarketAxess Letter”) at 5; Broadridge Letter at 2; Virtu Letter at 11.  Another commenter, in 
expressing concern about the scope of the Proposed Rules, describes that the Proposed Rules did not define 
“communication protocol system.”  See McHenry/Huizenga Letter at 2. 
125
  See, e.g., GDCA Letter II at 9; Coin Center Letter at 19-20.  
126
  See Letter from Scott Eisenberg, Head of Legal, DirectBooks LLC, dated Apr. 18, 2022.   
127
  See SIFMA Letter II at 9. 
128
  See Letter from Christopher A. Iacovella, Chief Executive Officer, American Securities Association, dated 
Apr. 18, 2022 (“ASA Letter”) at 3. 
129
  See, e.g., Bloomberg Letter I at 19; Chia Network Letter at 2 (stating that “the Commission’s proposed 
amendments [put] the entire Internet and connectivity businesses in jeopardy of tripping over the 
[Exchange Act]”).   

44 
 
each.
130
  The Commission proposed “communication protocols” as another non-
discretionary method for trading interest in the Proposing Release.  Should the 
Commission adopt Exchange Act Rule 3b-16(a)(2), as proposed to be amended, to 
include “communication protocols” as an example of a non-discretionary method 
under which buyers and sellers can interact and agree to the terms of a trade?  Why or 
why not?  In addition to the guidance provided in the Regulation ATS Adopting 
Release, should the Commission provide guidance on what “non-discretionary 
methods” means under Exchange Act Rule 3b-16?   
13. To reflect systems that provide non-discretionary methods under which buyers and 
sellers negotiate terms of a trade, should the Commission adopt amendments to 
Exchange Act Rule 3b-16(a)(2) that replace the proposed term “communication 
protocols” with the term “negotiation protocols” and adopt the following definition 
under a new Rule 3b-16(f):   
For purposes of this section, the term “negotiation protocols” means a non-
discretionary method that sets requirements or limitations designed for multiple 
buyers and sellers of securities using trading interest to interact and negotiate 
terms of a trade. 
14. As discussed above, some commenters state that the term “communication protocol” 
is too broad and vague and that it is unclear what activities or entities would be 
classified as communication protocol systems.
131
  The term “negotiation protocols” 
 
130
  See Regulation ATS Adopting Release at 70851-52.  The Regulation ATS Adopting Release stated that the 
Commission intended for “‘established, non-discretionary methods’ to include any methods that dictate the 
terms of trading among the multiple buyers and sellers entering orders into the system.”  Id. at 70850. 
131
  See supra note 123.    

45 
 
could better focus the non-discretionary methods that the Commission intended to 
capture in the proposed amendments to Exchange Act 3b-16(a)(2) than the term 
“communication protocols.”  The term “negotiation protocols” would be another 
example, in addition to directly or indirectly providing a trading facility or setting 
rules, of a non-discretionary method established by an exchange under which buyers 
and sellers can negotiate and agree to the terms of a trade.  What are commenters’ 
views of the term “negotiation protocols”?  Are there any terms that should be added, 
deleted, or modified in the definition of “negotiation protocol” to make the definition 
more precise or appropriate?  Are there other non-discretionary methods under which 
buyers and sellers can interact and agree to the terms of a trade that the Commission 
should add to Rule 3b-16(a)(2)?  If so, please explain.  What other types of protocols 
under which buyers and sellers can interact and agree to the terms of a trade exist or 
can be provided?     
15. The definition of “negotiation protocols” described above would set requirements or 
limitations designed to govern how the trading interest is used by participants to 
interact and negotiate a trade.  Should a definition of “negotiation protocols” specify 
both requirements and limitations that would constitute a non-discretionary method?  
Why or why not?     
16. As an alternative to adopting a definition of “negotiation protocols” in the rule text, 
should the Commission provide an explanation and examples of what negotiati   on 
protocols are and are not in any adopting release, similar to what the Commission did 
in the Regulation ATS Adopting Release when analyzing the application of Rule 3b-

46 
 
16 to hypothetical Systems A through T?
132
  In the Proposing Release, the 
Commission provided examples of trading systems that offer the use of non-firm 
trading interest and established protocols that would meet the criteria of Exchange 
Act 3b-16, as proposed to be amended (e.g., RFQ, conditional order systems, 
indication of interest systems).
133
  Should the Commission adopt those examples as 
hypotheticals that would meet the criteria of Rule 3b-16 similar to the hypotheticals 
in the Regulation ATS Adopting Release?  Please explain.  Should the examples that 
the Commission provided in the Proposing Release change in any way?  Are there 
any other examples that the Commission should adopt to describe New Rule 3b-16(a) 
Systems?  Please describe any such examples.   
17. As discussed above, whether an organization, association, or group of persons meets 
the definition of an exchange depends on the activities performed and not the 
technology used.  The Commission received comments requesting the Commission 
clarify that order management systems, order execution systems, and order execution 
management systems (collectively referred to as “OEMS” technology) do not meet 
the criteria of Rule 3b-16, as proposed to be amended.
134
  The Commission 
 
132
  See Regulation ATS Adopting Release at 70854-56. 
133
  See Proposing Release at 15500-01. 
134
  See Bloomberg Letter I at 16; SIFMA AMG Letter at 11; Broadridge Letter at 3; MFA Letter at 9; Letter 
from Kelvin To, Founder and President, Data Boiler Technologies, LLC, dated Apr. 18, 2022 at 9.  Several 
commenters express general concerns about and set forth policy arguments against including OEMSs 
within the Commission’s exchange regulation.  See, e.g., SIFMA AMG Letter at 6 (asserting that “the 
Commission’s drafting risks moving too far beyond trading venues and is potentially capturing a broad 
range of OEMS, ETF portal, and single user systems carefully developed by a diverse group of market 
participants to introduce efficiencies and costs savings into the market, but which do not allow for separate 
users to interact and do not directly connect with multiple brokers to confirm the non-discretionary 
execution of orders”); Letter from Sarah Bessin, Associate General Counsel, Investment Company 
Institute, dated Apr. 18, 2022 (“ICI Letter”) at 9 (arguing that there are no perceived regulatory benefits 
from applying the ATS or broker-dealer regulatory framework to internalized trading activity on OEMSs, 
which is independently regulated, and stating that it may “frustrate advisers’ ability to seek best execution 
on behalf of their clients”). 

47 
 
understands that brokers, dealers,  and investment advisers use OEMS technology to 
carry out their respective Commission-regulated activities.  The proposed 
amendments to Rule 3b-16 were not designed to capture within the definition of 
exchange the activities of brokers, dealers, and investment advisers who use an 
OEMS to carry out their functions (e.g., organizing and routing trading interest).  The 
use of OEMS technology, however, like other types of technology, could be used, in 
certain circumstances, to perform exchange activities (e.g., crossing orders of 
multiple buyers and sellers using established non-discretionary methods).   The 
Commission requests comment on what activities are performed today using OEMS 
technology and how the use of OEMS technology might change in the future.  The 
Commission requests comment on whether and how activities performed through the 
use of OEMS technology could meet the criteria of Rule 3b-16(a), as proposed to be 
amended.  Please explain why or why not. 
18. In light of comments that the concept of a communication protocol system could 
capture various types of technologies used by market participants for securities (e.g., 
GUIs, web chat providers, primary market communication systems, software 
solutions, or trading desks of a broker-dealer), please explain in detail and provide 
examples of the specific activities performed through the use of such technology 
identified by commenters.   
19. In response to the Proposing Release, the Commission received several comments 
expressing concern that the expansion of Exchange Act Rule 3b-16 might encompass 

48 
 
general Internet chat services, such as WhatsApp, Twitter, and Reddit.
135
  As stated in 
the Proposing Release, systems that provide general connectivity for persons to 
communicate without protocols containing requirements and limitations to negotiate 
trades for securities (e.g., utilities or electronic web chat providers) would not fall 
within the definition of exchange, as proposed to be amended.
136
  However, the 
determination as to whether a given system would meet the criteria under Rule 3b-
16(a), as proposed to be amended, must be based on the facts and circumstances 
surrounding the operation of the system, not the market name or categorization (i.e., 
simply because a program is called a “chat” or “messaging” service, it does not mean 
the service is per se outside the scope of Rule 3b-16(a), as proposed to be amended).  
For example, if a chat or messaging service was provided with a display functionality 
for trading interest in securities, an execution facility for securities, or protocols for 
participants to negotiate, the mere fact that the system contains a chat feature or 
message service would not necessarily preclude it from meeting the criteria of Rule 
3b-16 as proposed to be amended.  What features of a chat or message service could 
be considered protocols (i.e., requirements or limitations) under Rule 3b-16, as 
proposed to be amended, that would allow buyers and sellers to interact and negotiate 
a trade for securities?  Are there currently any types of chat services that are solely 
used for discussing securities but are not used for negotiating a securities trade?  Are 
 
135
  See, e.g., Chia Network Letter at 4-7 (stating that the expansion to parties that “make available” 
established, non-discretionary methods could capture large numbers of Internet and telecommunications 
providers, including any company that makes any sort of messaging system available to Internet users such 
as Twitter and Reddit, and creates regulatory uncertainty for all such entities); GDCA Letter II at 10 
(stating that the term trading interest “sweeps up dialogue that otherwise would be outside the rules,” such 
as “‘inadvertent’ or ‘incidental’ exchange activity” through protocols “with a primary social or business use 
unrelated to trading” that are “used secondarily or incidentally for trading”). 
136
  See Proposing Release at 15502 n.72. 

49 
 
there any types of chat services that are currently designed for buyers and sellers to 
interact and negotiate a trade for securities?  Please explain why or why not.   
20. Do commenters believe that there are other technologies, such as social networking 
websites, business communication platforms, financial information systems, 
blockchain technology nodes and smart contracting platforms,
137
 that could be used to 
perform activities that meet the criteria of Exchange Act Rule 3b-16(a), as proposed 
to be amended?  Are there any features of these systems that could be considered 
protocols (i.e., requirements or limitations) that allow buyers and sellers to interact 
and negotiate a trade for securities?  Please explain. 
21. Form ATS is designed to enable the Commission to determine whether an ATS 
subject to Regulation ATS is in compliance with Regulation ATS and other federal 
securities laws.
138
  Form ATS provides disclosures about, among other things, classes 
of subscribers, securities traded, manner of operation, and procedures governing the 
execution, reporting, clearance, and settlement of transactions.  Proposed Item 3(c) of 
Form ATS (current Form ATS Exhibit B) requires an ATS to disclose a list of 
securities the ATS trades or expects to trade, and requires disclosure of all securities, 
which includes crypto asset securities.
139
   
22. Form ATS-N is designed to provide market participants with information to, among 
other things, help them make informed decisions about whether to participate on an 
NMS Stock ATS (and, as proposed, on a Government Securities ATS).
140
  Proposed 
 
137
  See infra note 278. 
138
  See Form ATS Instruction A.6. 
139
  See Proposing Release at 15653. 
140
  See Form ATS-N Instruction D. 

50 
 
Part I, Item 8 of Form ATS-N would require an NMS Stock ATS or Government 
Securities ATS to disclose information about the NMS stocks and government 
securities that it makes available for trading, which would include any NMS stocks or 
government securities that are crypto asset securities.
141
  Should the Commission 
adopt an amendment to proposed Item 3(c) of Form ATS or proposed Part I, Item 8 of 
Form ATS-N to require ATSs and NMS Stock ATSs and Government Securities 
ATSs to specifically identify the securities that are crypto asset securities?  Why or 
why not?  Should the Commission make any other changes to Form ATS and Form 
ATS-N in light of the Proposing Release and the information provided in this 
Reopening Release? 
23. Form ATS-R, which is filed on a quarterly basis and deemed confidential when filed, 
is designed to enable the Commission to more effectively track the growth and 
development of ATSs, as well as to more effectively comply with its statutory 
obligations with respect to ATSs, and improve investor protection.
142
  Among other 
things, Form ATS-R requires ATSs to list all securities that were traded on the ATS 
at any time during the period covered by the report
143
 and to report total unit and 
dollar volume of transactions for certain categories of securities.
144
  Should Form 
 
141
  See Proposing Release at 15542.   
142
  See Form ATS-R Instruction A.7. 
143
  See Form ATS-R Item 3.  Form ATS-R also requires a list of all subscribers that were participants of the 
ATS during each calendar quarter.  See Form ATS-R Item 2. 
144
  See Form ATS-R Item 4.  For example, Form ATS-R requires NMS Stock ATSs to report the total unit and 
dollar volume of transactions in NMS stocks that are reported to the consolidated tape in “Listed Equity 
Securities” (Item 4A), “Nasdaq National Market Securities” (Item 4B), or “Nasdaq SmallCap Market 
Securities” (Item 4C).  In the Proposing Release, the Commission proposed to delete the categories 
“Nasdaq National Market Securities” and “Nasdaq SmallCap Market Securities” and require ATSs to 
report the total volume previously reported under these categories under “Listed Equity Securities.”  See 
Proposing Release at 15580.  

51 
 
ATS-R be amended to require ATSs to indicate whether any of the types of securities 
traded on the ATS are crypto asset securities?  For example, should Form ATS-R 
include a checkbox for each type of security listed on Form ATS-R for the ATS to 
indicate whether any of the securities transacted are crypto asset securities?  Why or 
why not?  Should Form ATS-R be amended to require an ATS to report the total unit 
and dollar volume of transactions in crypto asset securities for each category of 
securities?  Why or why not?  Should the Commission make any other changes to 
Form ATS-R in light of the Proposing Release and the information provided in this 
Reopening Release?  
24. Information about a New Rule 3b-16(a) System’s operations, including operations 
related to non-firm trading interest and protocols provided for buyers and sellers to 
interact and negotiate the terms of a trade, would be responsive to proposed Item 3(g) 
of Form ATS, which requires a description of the manner of operation of the ATS.  
To assist New Rule 3b-16(a) Systems in responding to Form ATS, should the 
Commission adopt an amendment to proposed Item 3 of Form ATS to add the 
following requirement as a disclosure: “any display of trading interest” and 
“protocols provided for buyers and sellers to interact and negotiate the terms of a 
trade”?  Please explain why or why not.  Although this information would be 
responsive to current Form ATS Item 8(a) and would be required to be included in 
current Form ATS Exhibit F, the explicit references would make clear to ATSs that 
such information is responsive to the form and must be provided.   
25. Proposed Item 3(j) of Form ATS (current Form ATS Item 8(d), which is required to 
be disclosed on Exhibit F) would require an ATS to provide “a description of the 

52 
 
procedures governing execution, reporting, clearance, and settlement of transactions 
effected through the [ATS].”
145
  Should the Commission adopt an amendment to the 
Item to include a reference to the use of DLT among the procedures so that the Item 
would state that the ATS must include “a description of the procedures, including 
through use of DLT, governing execution, reporting, clearance, and settlement of 
transactions effected through the alternative trading system”?  Please explain why or 
why not.  Although a description of the use of DLT, or any other technology, in these 
processes is currently required by the term “procedures,” the explicit reference to 
DLT would make clear that a description of its use would be required to be provided 
in Form ATS. 
26. As discussed above, several commenters ask questions about how so-called “DeFi” 
systems could comply with the requirements of Regulation ATS.
146
  Form ATS-N, 
which provides operational transparency and regulatory oversight of NMS Stock 
ATSs and, as proposed, of Government Securities ATSs, is technology neutral and 
asks questions designed to apply to ATSs that vary in structure and offer many 
different functionalities and trading processes and procedures.  However, Form ATS-
N provides examples of specific functionalities and procedures that would be 
responsive to particular questions.  To assist subject systems in responding to Form 
ATS-N, should the Commission adopt any changes, particularly to the examples 
provided in Form ATS-N, to clarify and highlight the applicability of certain items in 
Form ATS-N to NMS Stock ATSs and Government Securities ATSs that use DLT?  
 
145
  See id. at 15654. 
146
  See, e.g., supra note 55. 

53 
 
Should, for example, the Commission adopt amendments to proposed Part II, Item 5 
to provide examples of other products and services that the operator of a system that 
uses DLT may provide for the purpose of effecting transactions or submitting, 
disseminating, or displaying trading interest on the ATS?
147
  Should the Commission 
adopt amendments to Part III, Item 5(a) to provide web-based systems as an example 
of means by which the NMS Stock ATS or Government Securities ATS permits 
trading interest to be entered directly into the ATS?
148
  Should the Commission adopt 
amendments to Part III, Item 15 to provide examples of blockchain-based means by 
which trading interest can be displayed or made known to the ATS subscribers or the 
public?
149
  Should the Commission adopt amendments to proposed Part III, Item 21 
to provide examples of blockchain-based procedures to manage the post-trade 
processing, clearance, and/or settlement on the ATS?
150
  Should the Commission 
adopt amendments to proposed Part III, Item 22 to provide examples of blockchain-
based market data sources?
151
   
D. Exclusion from Exchange Act Rule 3b-16(a)  
In the Proposing Release, the Commission proposed to amend Rule 3b-16(b) to add an 
exclusion from Rule 3b-16(a) for systems that allow an issuer to sell its securities to investors.
152
  
 
147
  See Proposing Release at 15546-48. 
148
  See id. at 15552-53. 
149
  See id. at 15563-65.  Such amendments could provide examples of blockchain-based means by which: an 
ATS may display trading interest to its subscribers or the public; a subscriber can display or make known 
trading interest through the ATS; and trading interest bound for the ATS is made known to any person.  See 
id.   
150
  See id. at 15568-69. 
151
  See id. at 15569. 
152
  See proposed Rule 3b-16(b)(3).  

54 
 
The Commission stated in the Proposing Release that the exclusion was merely codifying in Rule 
3b-16(b)(3) an example the Commission provided in the Regulation ATS Adopting Release for 
systems that have a single seller of its securities.
153
  While such systems have multiple buyers 
(i.e., investors), they have only one seller for each security (i.e., issuers) and, therefore, do not 
meet the criteria of Rule 3b-16(a) because the systems do not bring together multiple buyers and 
multiple sellers.
154
   
One commenter states that it is unclear whether the issuer exclusion would cover portals 
on which multiple issuers offer securities.
155
  Another commenter suggests that the exclusion for 
issuer systems should be revised to state that it applies to a system that “allows one or more 
issuers to sell their securities to investors, either directly or through placement agents or 
underwriters.”
156
  This commenter states that a system that allows more than one issuer to sell its 
own securities is a single counterparty system because for any particular security, there is only 
one counterparty, the issuer of the securities.
157
  This commenter further states that including the 
phrase “or through placement agents or underwriters” is needed to make clear that the issuer 
exclusion may continue to be applied if the system permits an issuer to use brokers or 
underwriters, and this approach is desirable because it permits the interposition of registered 
brokers, who provide a multitude of services protective of the rights of investors.
158
 
Two commenters request that the Commission confirm that a system or portal that an 
exchange-traded fund (“ETF”) sponsor uses to facilitate ETF primary market operations (i.e., 
 
153
  See Regulation ATS Adopting Release at 70849.  
154
  Id. 
155
  See SIFMA AMG Letter at 8.  
156
  See ABA Letter at 8.  
157
  Id. at 9. 
158
  Id.  

55 
 
creation and redemption of ETF shares) (“ETF Portal”) is not a communication protocol system, 
as defined in the Proposing Release, and otherwise does not meet the definition of “exchange,” 
as proposed to be amended.
159
  The commenters state that ETF Portals enable registered broker-
dealers that serve as an ETF’s authorized participants (“APs”) to communicate creation or 
redemption requests for an ETF.
160
  One of the commenters states that ETF Portals do not create 
a market place for secondary market trading activity (i.e., trading of the actual ETF shares among 
individual investors) because they are used by ETF sponsors for the specific purpose of creating 
and redeeming their own issued securities.
161
  In this respect, this commenter believes that ETF 
Portals are similar to a system that allows issuers to sell their own securities to investors.
162
  
Another commenter similarly agrees that ETF Portals should not be included in the definition of 
an “exchange” and does not believe there would be any public benefit to treating such portals as 
exchanges and requiring ATS registration.
163
    
Request for Comment 
27. Should the Commission adopt Rule 3b-16(b)(3), as proposed to be amended?  Why or 
why not?  Should the Commission adopt the proposed Rule 3b-16(b)(3) exclusion but 
 
159
  See SIFMA AMG Letter at 8; ICI Letter at 13.  The commenters state that they do not believe that the 
Commission intended to classify ETF Portals as exchanges under Rule 3b-16, as proposed to be amended.  
See id.   
160
  See id.   
161
  See ICI Letter at 14.  This commenter also states that an ETF Portal’s activities are limited in the following 
respects: “(1) the scope of ETFs involved in the creation or redemption process is confined to those offered 
by the ETF sponsor; (2) only registered broker-dealers that have an established agreement with an ETF 
sponsor’s ETF to act as an AP can submit creation or redemption requests to the ETF; and (3) the system or 
portal does not directly facilitate secondary market activity in the ETF (i.e., trading of the actual ETF 
shares among individual investors), nor does it provide access for individual investors that are not 
registered broker-dealers.”  Id. at 13.  
162
  See id. at 14.  This commenter further states that applying the Regulation ATS and broker-dealer regulatory 
frameworks to ETF Portals would impose unnecessary additional costs and burdens to the ETF creation and 
redemption process, lead to unintended consequences, and would not further the Commission’s regulatory 
objectives.   See id. at 4.           
163
  See SIFMA AMG Letter at 8.    

56 
 
with certain revisions?  If so, please identify those revisions and explain.  For 
example, should the Commission adopt, as suggested by one commenter, the 
proposed issuer exclusion with revisions to state that it applies to a system that 
“allows one or more issuers to sell their securities to investors, either directly or 
through placement agents or underwriters”?  In particular, should the Commission 
add “ one or more issuers” to the proposed issuer exclusion?  What types of systems 
would be covered under the revised issuer exclusion example above?  Please explain.  
Is the inclusion of “either directly or through placement agents or underwriters” in the 
revised issuer exclusion example above necessary or appropriate to clarify its 
application?  If so, why?   
28. How do ETF Portals operate for the creation and redemption of securities?  Who are 
the participants in ETF Portals and how do they interact?  Are there any trading 
activities conducted as part of the creation and redemption process through an ETF 
Portal that are exchange activities or necessitate further clarification by the 
Commission as to whether such activities are exchange activities?  Do an ETF 
Portal’s activities facilitate secondary market activity in the ETF?  Why or why not?  
Does trading in ETF Portals involve multiple buyers and sellers of securities?  Why 
or why not?  What non-discretionary methods are generally used by ETF Portals? 
29. Do ETF Portals fall within the criteria of existing Exchange Act Rule 3b-16(a) or 
Rule 3b-16(a),  as proposed to be amended?  Why or why not?  If the activities 
conducted through ETF Portals fall within the criteria of existing Exchange Act Rule 
3b-16(a) or Rule 3b-16(a), as proposed to be amended, should the Commission adopt 
an exclusion under Exchange Act Rule 3b-16(b)(3) for ETF Portals?  If yes, please 

57 
 
explain why and explain what the exclusion should apply to.  How should an ETF 
Portal be defined for purposes of the exclusion?  For example, should the 
Commission expressly adopt an exclusion that applies only to ETF Portals that fall 
within this definition: “a system that allows one or more issuers from the same 
sponsoring entity to solicit creation or redemption requests for their own securities 
submitted by authorized participants for those securities”?  Should the Commission 
adopt an exclusion that applies only to platforms that solely support primary market 
transactions in investment company securities, where the issuer of the security 
participates in each transaction either as the sole buyer, or as the sole seller?  If so, 
should the exclusion be available only for securities issued by ETFs or also for 
securities issued by other investment companies?  Should the exclusion specify that it 
is available only for transactions that take place at a price based on the current net 
asset value of the security, as required by 17 CFR 270.22c-1 (Rule 22c-1 under the 
Investment Company Act of 1940)?  What ETF Portals should not be excluded from 
Exchange Act Rule 3b-16(a)?  Please explain.    
E. Compliance Date for Implementation of Proposed Amendments to Rule 
3b-16 
Exchange Act Rule 3b-16, as proposed to be amended, would require, if adopted, New 
Rule 3b-16(a) Systems to comply with federal securities laws applicable to national securities 
exchanges and ATSs.  These systems may trade securities that are crypto asset securities, or 
specific types of securities, including NMS stock, over-the-counter (“OTC”) e quity securities, 
corporate bonds, municipal securities, government securities, foreign sovereign debt, asset-
backed securities, restricted securities, or options.  New Rule 3b-16(a) Systems provide access to 

58 
 
numerous and diverse market participants (e.g., retail investors, institutional investors, broker-
dealers, issuers) seeking to perform different trading strategies and investment objectives in 
various types of securities.  To facilitate these market participants’ trading strategies and 
investment objectives, providers of these trading systems employ assorted technology and 
protocols (e.g., Internet, DLT, cloud) and apply a variety of methods to bring together buyers and 
sellers in securities (e.g., RFQ, indication of interest, negotiation, conditional orders, bid wanted 
in competition, streaming axes).    
Several commenters express concern that New Rule 3b-16(a) Systems would not be 
provided enough time to comply with their new regulatory obligations.
164
  As stated in the 
Proposing Release, the Commission expects that many New Rule 3b-16(a) Systems would elect 
to register as broker-dealers and comply with Regulation ATS;
165
 however, they can also elect to 
register as exchanges.
166
  The Commission recognizes that New Rule 3b-16(a) Systems are 
operating today and would seek to comply with the Proposed Rules without disrupting their 
current business and their participants.  To facilitate the trading system operators’ compliance 
with the Proposed Rules, the Commission is soliciting further public comment on any 
compliance dates for the Proposed Rules.   
Request for Comment 
30. Should the Commission adopt a compliance date to delay implementation for New 
Rule 3b-16(a) Systems?  Why or why not?  Should the Commission adopt the same 
 
164
  See, e.g., MarketAxess Letter at 5; Letter from Teana Baker-Taylor, Chief Policy Officer, Chamber of 
Digital Commerce, dated Mar. 24, 2022 (“Chamber Letter”) at 5; Letter from Elisa Hirschmann, Executive 
Director, Chief Compliance Officer, BrokerTec Americas LLC, CME Group, Inc., dated Apr. 18, 2022 at 
4; Bloomberg Letter I at 4-5; Letter from Scot J. Halvorsen, Associate General Counsel, Cboe Global 
Markets, Inc., dated Apr. 18, 2022 (“Cboe Letter”) at 2; Crypto Council Letter at 7. 
165
  See Proposing Release at 15502. 
166
  See id. at 15617-18.  

59 
 
compliance date for all New Rule 3b-16(a) Systems or different compliance dates 
depending on certain factors, such as the type of securities the system trades?  Please 
explain.  For example, should the Commission adopt separate compliance dates to 
implement the proposed amendments to Exchange Act Rule 3b-16 for trading 
systems that trade one or more of the following: NMS stock, OTC equity securities, 
corporate bonds, municipal securities, government securities, foreign sovereign debt, 
asset-backed securities, restricted securities, or options?  Please explain. 
31. As indicated above, crypto assets generally use DLT as a method to record ownership 
and transfers, and a crypto asset that is a security is not a separate type or category of 
security for purposes of federal securities laws based solely on the use of DLT.
167
  
Should the Commission adopt a separate compliance date for New Rule 3b-16(a) 
Systems that trade crypto asset securities?
168
  Please explain.  If the Commission 
adopts a different compliance date for New Rule 3b-16(a) Systems that trade crypto 
asset securities, for purposes of ascribing such compliance date, should “crypto asset 
securities” be defined to mean securities that are also issued and/or transferred using 
distributed ledger or blockchain technology, including, but not limited to, so-called 
“virtual currencies,” “coins,” and “tokens,” to the extent they rely on cryptographic 
protocols?
169
  Please explain.   
32. Should the Commission adopt a uniform compliance period for all categories of 
securities that is one year?  Or would a shorter or longer time period than one year be 
 
167
  See supra note 27and accompanying text. 
168
  Such a delayed compliance date for New Rule 3b-16(a) Systems would not impact the obligation of 
systems that meet the existing criteria of Rule 3b-16 to comply with existing rules. 
169
  In the past, the Commission used this definition for “digital asset securities” in the Commission Statement 
on Custody of Digital Asset Securities by Special Purpose Broker-Dealers.  See supra note 26
.  

60 
 
sufficient or necessary?  If commenters believe the Commission should adopt 
different compliance dates for trading systems that trade a category of security, what 
compliance date should the Commission adopt for such trading systems?  Please 
explain.   
33. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 
Systems based on the types of participants that trade on the system?  For example, 
should the Commission adopt a delayed compliance date for trading systems that 
have predominately retail, institutional, or broker-dealer participants?  Please explain.  
What compliance date should the Commission adopt for these types of trading 
systems?  Please explain.   
34. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 
Systems based on the different means by which participants enter trading interest into 
the system?  For example, should the Commission adopt a delayed compliance date 
for trading systems that perform intermediary services, such as entering trading 
interest into the trading system on behalf of users or offering users services other than 
trading?  Should the Commission adopt a delayed compliance date for trading 
systems that allow buyers and sellers to enter trading interest into the system directly 
without an intermediary?  Please explain.  What compliance date should the 
Commission adopt for these types of trading systems?  Please explain.   
35. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 
Systems based on different trading protocols that bring together buyers and sellers to 
negotiate a trade?  For example, should the Commission adopt different compliance 
dates for trading systems that provide RFQs, indications of interest, bids wanted in 

61 
 
competition, or streaming axes?  Should the Commission adopt a delayed compliance 
date for trading systems that use AMMs for buyers and sellers to enter trading interest 
into the system and negotiate a trade?  What compliance date should the Commission 
adopt for these types of trading systems?  Please explain.   
36. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 
Systems based on the technology supporting its exchange activity (e.g., Internet, 
DLT, cloud)?  For example, should the Commission adopt a delayed compliance date 
for trading systems that use DLT to bring together buyers and sellers using trading 
interest and establish protocols that allow participants to negotiate a trade?  Please 
explain.  What compliance date should the Commission adopt for these types of 
trading systems?  Please explain.   
37. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 
Systems based on the volume that trading systems transact?  For example, should the 
Commission adopt a delayed compliance date for a trading system that transacts a 
certain level of dollar volume or share volume, and if so, what should that volume be?  
Should the Commission adopt different compliance dates for trading systems based 
on all of their transaction volume or only transaction volume in a category of security 
or in a crypto asset security?  Please explain.  What compliance date should the 
Commission adopt for these types of trading systems?  Please explain.  
38.  Should the Commission adopt different compliance dates for New Rule 3b-16(a) 
Systems based on a combination of factors described above or any other factors?  
Please explain.   

62 
 
IV. Paperwork Reduction Act 
In the analysis of the proposed rule amendments under the Paperwork Reduction Act of 
1995 (“PRA”) of the Proposing Release, the Commission estimated 22 Communication Protocol 
Systems
170
 would be impacted by the Proposed Rules.  This estimate included systems that offer 
trading of OTC equity securities and restricted securities, some of which trade crypto asset 
securities.   
The Commission is revising the estimated number of trading systems that would be 
impacted by the proposed amendments to Exchange Act Rule 3b-16 to include: (1) New Rule 
3b-16(a) Systems that trade crypto asset securities and were not included in the estimates in the 
Proposing Release, and (2) New Rule 3b-16(a) Systems for non-crypto asset securities that have 
exited, entered, or intend to enter, the market since the Commission issued the Proposing 
Release.  The Commission is not revising its estimate of the per-respondent burdens that would 
be imposed by the proposed amendments to Rule 3b-16(a).  The summary of the “collection of 
information” requirements within the meaning of the PRA and the proposed use of such 
information described in the Proposing Release are unchanged. 
A. Respondents 
As discussed in the Proposing Release,
171
 the Commission believes that New Rule 3b-
16(a) Systems would likely choose to register as a broker-dealer and comply with the conditions 
of Regulation ATS rather than register as a national securities exchange because of the lighter 
 
170
  The Proposing Release referred to systems that would newly meet the definition of “exchange” under the 
Proposed Rules as “Communication Protocol Systems.”  See Proposing Release at 15496 n.5.  See also id. 
at 15586 (estimating the total number of Communication Protocol Systems to be 22).   
171
  See id. at section VII. 

63 
 
regulatory requirements imposed on ATSs, as compared to registered exchanges.
172
  For 
purposes of this PRA analysis, New Rule 3b-16(a) Systems that would comply with Regulation 
ATS are referred to as “Newly Designated ATSs.”
173
  In the Proposing Release, the Commission 
estimated the total number of Newly Designated ATSs, across all asset classes, to be 22.
174
  
Since issuing the Proposing Release, the Commission has learned, based on public sources of 
information, of several trading systems that appear to offer the use of non-firm trading interest, 
provide non-discretionary protocols, trade crypto asset securities, and were not included within 
the Commission’s initial estimate of the number of respondents.  Based on publicly-available 
information, these trading systems may meet the criteria of Exchange Act Rule 3b-16(a) as 
proposed to be amended and therefore, this PRA analysis includes estimates of the burdens that 
these systems would incur under the Proposed Rules.  Many of the entities operating such trading 
systems, however, depending on their activities and other facts and circumstances, may be 
subject to existing federal securities laws and registration requirements, including the 
requirement to register as an exchange under existing criteria of Rule 3b-16(a) or the requirement 
to register as a broker-dealer.  In this regard, the Commission recognizes that it may be over-
 
172
  See id. at section II.D.  As discussed above, today, the Commission preliminarily believes that some 
amount of crypto asset securities trade on New Rule 3b-16(a) Systems.  See supra note 31.  These systems 
are not included as estimated respondents for the purposes of the PRA analysis because they are already 
required to comply with current applicable regulations; the proposed amendments to Rule 3b-16 would not 
result in any new burden on these systems.  Rather, the PRA analysis includes the estimated number of 
respondents for which a new burden would be imposed by the proposed amendments to Rule 3b-16.  
Further, as discussed earlier in this section, the Commission is not revising its estimate of the per-
respondent burdens that would be imposed by the proposed amendments to Rule 3b-16.  The increase in the 
estimate of total burdens across all respondents is due solely to the Commission revising its estimate of the 
number of respondents to include: (1) systems that would meet the criteria of Rule 3b-16, as proposed to be 
amended, and trade crypto asset securities; and (2) systems that would meet the criteria of Rule 3b-16, as 
proposed to be amended, and trade securities that are not crypto asset securities and have entered, intend to 
enter, or exited the market since the Commission issued the Proposing Release. 
173
  See supra note 170.  The description of respondents and burden estimates described in this Reopening 
Release for Newly Designated ATSs supersedes and replaces corresponding respondent and burden 
estimates for Communication Protocol Systems in the Proposing Release.    
174
  See Proposing Release at section VII.C.  

64 
 
estimating the number of respondents that may be subject to the Proposed Rules.  Specifically, 
the Commission is revising the estimated total number of Newly Designated ATSs from the 22 
estimated systems in the Proposing Release to a total of 35-46 estimated Newly Designated 
ATSs,
175
 which would include: (1) an additional 15-20 New Rule 3b-16(a) Systems that trade 
crypto asset securities,
176
 and (2) 20-26 Newly Designated ATSs (revised from the 22 Newly 
Designated ATSs estimated in the Proposing Release),
177
 which has been revised to reflect New 
Rule 3b-16(a) Systems for non-crypto asset securities that have exited, entered, or intend to 
enter, the market since the Commission issued the Proposing Release.  For the purposes of this 
PRA analysis, the Commission is analyzing the burdens for an estimated 46 Newly Designated 
 
175
  As discussed in the Proposing Release, some of the estimates could change based on how the Newly 
Designated ATSs structure their operations if subject to Regulation ATS.  See id. at 15586 n.749.  For 
example, the Commission is basing some of the below estimates on the assumption that operators of Newly 
Designated ATSs that are affiliated with existing broker-dealers would structure their operations so that the 
existing broker-dealer would operate the ATS to avoid the costs of new broker-dealer registration.  In 
addition, the Commission estimates that 2 Newly Designated ATSs that trade municipal securities or 
corporate debt securities would meet the volume thresholds to satisfy the conditions for complying with 
ATS-specific systems capacity, integrity and security recordkeeping as well as systems outages 
requirements.  This number is based on aggregate data reported by broker-dealers and could vary based on 
how these systems structure their businesses. 
176
  The Commission received several comments stating that the PRA analysis in the Proposing Release 
underestimated or did not include systems that trade crypto asset securities.  See, e.g., Bloomberg Letter II 
at 2-3; Coin Center Letter at 25; Coinbase Letter at 6; Crypto Council Letter at 4-7.  One commenter states 
that the Commission did not include approximately 288 crypto “exchanges,” 200 crypto AMMs, and 9 
front-end platforms that offer liquidity aggregation and (smart) order routing functionality.  See Bloomberg 
Letter II at 2-3.  It is not clear from the comment letter whether these systems operate in the U.S., use non-
firm trading interest, and provide non-discretionary protocols to bring together buyers and sellers to 
negotiate, and thus would be New Rule 3b-16(a) Systems and subject to the new burdens analyzed under 
the PRA.  In addition, the Commission preliminarily believes that some amount of crypto asset securities 
trade on New Rule 3b-16(a) Systems.  See s upra note 
31.  These systems could be some or many of the 
systems the commenter references.  However, without additional information, the Commission is unable to 
assess whether the systems referenced by the commenter would meet existing Rule 3b-16(a), or Rule 3b-
16(a), as proposed to be revised.  In addition, some commenters estimate that hundreds or thousands of 
persons could be captured by the proposed rule change.  See supra note 
60.    See also SIFMA Letter II at 8-
9 (stating that “[t]he broad concept of communication protocol systems could theoretically capture 
hundreds, if not thousands, of systems across asset classes” and there is a disconnect with the 
Commission’s estimate that 22 systems would be affected by the Proposed Rules).  As discussed above, 
systems would constitute a single exchange and be responsible for compliance as a single entity.  See supra 
section II.B. 
177
  The original 22 Newly Designated ATSs the Commission estimated in the Proposing Release may include 
ATSs that trade crypto asset securities. 

65 
 
ATSs, based on the high end of these ranges.
178
  Some or all of this total number will be subject 
to the following collections of information
179
 as estimated below:
180
    
  
Collection of 
Information 
Rule Number of 
Respondents 
Description 
Rule 301 of 
Regulation ATS 
and Forms ATS 
and ATS-R 
 
17 CFR 
242.301(b)(2) 
(“Rule 
301(b)(2)”) 
37 The Commission estimates that 
certain Newly Designated ATSs 
that trade securities other than 
NMS stocks or government 
securities or repos, including 
crypto asset securities, would be 
required to file the proposed 
modernized Form ATS. 
 Rule 301(b)(5) 10 The Commission estimates that 
certain Newly Designated ATSs 
would meet the volume 
thresholds in government 
securities, NMS stocks, corporate 
debt securities, municipal 
securities, equity securities that 
are not NMS stocks and for 
which transactions are reported 
 
178
  In the Proposing Release, the Commission certified that the proposed amendments to Regulation ATS 
would not, if adopted, have a significant economic impact on a substantial number of small entities 
pursuant to section 3(a) of the Regulatory Flexibility Act of 1980 (5 U.S.C. 603(a)).  See Proposing Release 
at 15645.  The Commission did not receive any comment regarding its certification.  Although the 
Commission is now revising its estimate of the number of respondents that would be subject to the 
proposed rules, the Commission continues to certify that the proposed amendments would not, if adopted, 
have a significant economic impact on a substantial number of small entities.  As in the Proposing Release, 
the Commission encourages written comments regarding this certification. 
179
  The estimates presented here relate only to those collections of information for which the burdens will 
change as a result of increasing the estimated total number of Newly Designated ATSs.  For the complete 
estimated burden associated with the proposed amendments, the estimates here for Newly Designated 
ATSs should be considered together with those originally included in the Proposing Release for 
Communication Protocol Systems, see Proposing Release at section VII, with any burden identified by the 
identical combination of Collection of Information and rule number replaced and superseded by that 
contained here.  
180
  The estimated respondents for the Rule 304/Form ATS-N collection of information is based on the 
assumption that systems that operate multiple market places that are affiliated with a new or existing 
broker-dealer will all be operated by such broker-dealer, and that such systems will not register multiple 
broker-dealers to operate multiple affiliated ATSs. 

66 
 
Collection of 
Information 
Rule Number of 
Respondents 
Description 
to an SRO and be subject to the 
Fair Access Rule. 
 17 CFR 
242.301(b)(9) 
(“Rule 
301(b)(9)”) 
46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the 
requirement to file quarterly 
reports on the proposed 
modernized Form ATS-R. 
 17 CFR 
242.301(b)(10) 
(“Rule 
301(b)(10)”) 
46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the 
requirement to have written 
safeguards and written 
procedures to protect 
subscribers’ confidential trading 
information. 
Rule 302 of 
Regulation ATS 
17 CFR 
242.302 (“Rule 
302”) 
46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the 
recordkeeping requirements for 
ATSs. 
Rule 303 of 
Regulation ATS 
17 CFR 
242.303 (“Rule 
303”) 
46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the record 
preservation requirements for 
ATSs. 
Rule 304 of 
Regulation ATS 
17 CFR 
242.304 (“Rule 
304”) 
9 The Commission estimates that 
certain Communication Protocol 
Systems that trade NMS stocks 
or government securities or repos 
would be required to file Form 
ATS-N, as proposed to be 
revised. 
Rule 15b1-1 and 
Form BD 
17 CFR 
240.15b1-1 
(“Rule 15b1-1”) 
27 The Commission estimates that 
certain Newly Designated ATSs 
are not currently registered as or 
affiliated with a broker-dealer 
and will need to register using 

67 
 
Collection of 
Information 
Rule Number of 
Respondents 
Description 
Form BD.  This would include 
all Newly Designated ATSs that 
trade crypto asset securities that 
do not currently file a Form ATS. 
Form ID 17 CFR 
232.101 (“Rule 
101 of 
Regulation S-
T”) 
27 The Commission estimates that 
the same subset of Newly 
Designated ATSs that are not 
currently registered as or 
affiliated with a broker-dealer 
will also need to file Form ID to 
apply for EDGAR access. 
 
B. Total PRA Burdens 
The Commission continues to assume that, under the proposed amendments, Newly 
Designated ATSs will choose to register as broker-dealers and comply with the conditions of 
Regulation ATS, rather than register as a national securities exchange,
181
 and the estimates 
below reflect this assumption. 
1. Burden of Rule 301 of Regulation ATS and Forms ATS and ATS-R 
a. Rule 301(b)(2) Burden on Newly Designated ATSs 
 As discussed in the Proposing Release, the Commission estimates that each Newly 
Designated ATS would incur an initial burden of 20.5 hours
182
 and an annual burden of 5 
 
181
  See Proposing Release at 15618 n.1056 and accompanying text. 
182
 The Commission’s currently approved baseline for the average initial compliance burden for each initial 
operation report (“IOR”) on Form ATS is 20 hours (Attorney at 13 hours + Compliance Clerk at 7 hours).  
See Extension Without Change of a Currently Approved Collection: Regulation ATS Rule 301 
Amendments; ICR Reference No. 202101-3235-011; OMB Control No. 3235-0509 (June 9, 2018), 
available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-011 (“Rule 301 
PRA Supporting Statement”).  The Commission proposed amendments to Part I of Form ATS, which 
would add an additional burden of 0.5 hours per filing using the modernized form (Compliance Clerk at 0.5 
hours), and therefore the average compliance burden for each Form ATS filing would be 20.5 hours.  See 
Proposing Release at section V.B and section VII.E (discussing proposed changes). 

68 
 
hours
183
 for complying with Rule 301(b)(2).  In light of the revision of the Commission’s 
estimate of Newly Designated ATSs, the Commission estimates the following total initial and 
annual burdens: 
Burden Type Respondent Type Number of 
Respondents 
Burden per 
Respondent 
Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent) 
 
Initial Newly Designated 
ATSs 
37 20.5 hours 758.5 hours  
Annual 5 hours 185 hours  
 
b. Rule 301(b)(5) Burden on Newly Designated ATSs  
As discussed in the Proposing Release, the Commission estimates an annual compliance 
burden of 37 hours per respondent for Rule 301(b)(5).
184
  In light of the revision of the 
Commission’s estimate of Newly Designated ATSs, the Commission estimates the following 
total annual burdens: 
 
183
 The Commission’s currently approved baseline for the average ongoing compliance burden for each 
amendment to a Form ATS IOR is 4 hours ((Attorney at 1.5 hours + Compliance Clerk at 0.5 hours) × 2 
IOR amendments a year).  See Rule 301 PRA Supporting Statement.  The Commission proposed 
amendments to Part I of Form ATS, including a requirement applicable to an ATS filing an IOR 
amendment to attach as Exhibit 3 a marked document to indicate changes to “yes” or “no” answers and 
additions or deletions from any Item in Part I, Part II, and Part III, which would add an additional annual 
burden of 1 hour per ATS using the modernized form (Compliance Clerk at 0.5 hours × 2 IOR amendments 
a year).  Therefore the average compliance burden for each Form ATS filing would be 5 hours.  See 
Proposing Release at section V.B and section VII.E (discussing proposed changes). 
184
 The Commission’s currently approved baseline for the average compliance burden per respondent is 37 
hours = 10 hours for Fair Access standards recordkeeping (Attorney at 5 hours × 2 responses a year) + 27 
hours for Fair Access notices (Attorney at 1 hour × 27 responses a year).  See Proposing Release at section 
VII.D.1.b. 

69 
 
Respondent Type Number of 
Respondents 
Annual Burden 
per Respondent 
Total Annual Burden 
(Number of 
Respondents × Annual 
Burden per 
Respondent)  
 
Newly Designated ATSs 10 37 hours 370 hours   
 
c. Rule 301(b)(6) Burden on Newly Designated ATSs 
The Commission estimates that none of the Newly Designated ATSs trading crypto asset 
securities or that have entered or intend to enter the market since the Commission issued the 
Proposing Release would meet the applicable volume requirements and be subject to the 
requirements of 17 CFR 242.301(b)(6) (“Rule 301(b)(6)”), and therefore, the estimates in the 
Proposing Release remain unchanged. 
d. Rule 301(b)(9) Burden on All Respondents 
As discussed in the Proposing Release, the Commission estimates an annual compliance 
burden of 19 hours per new Form ATS-R respondent
185
 and 3 hours per existing Form ATS-R 
respondent.
186
  In light of the revision of the Commission’s estimate of Newly Designated ATSs, 
the Commission estimates the following total annual burdens: 
Respondent Type Number of 
Respondents 
Annual Burden 
per Respondent 
Total Annual Burden 
(Number of 
Respondents × Annual 
Burden per 
Respondent)  
 
Newly Designated ATSs 46 19 hours 874 hours   
 
 
185
 The annual burden per Newly Designated ATS would be 4.75 hours × 4 quarterly filings annually = 19 
burden hours.  See Proposing Release at 15590 n.770. 
186
 The annual burden per existing Form ATS-R respondent would be 0.75 hours × 4 quarterly filings annually 
= 3 burden hours.  See id. at 15590 n.771. 

70 
 
e. Rule 301(b)(10) Burden on Newly Designated ATSs 
As discussed in the Proposing Release, the Commission estimates an initial burden of 8 
hours
187
 and an annual burden of 4 hours
188
 per respondent for complying with Rule 301(b)(10).  
In light of the revision of the Commission’s estimate of Newly Designated ATSs, the 
Commission estimates the following total initial and annual burdens: 
Burden 
Type 
Respondent Type Number of 
Respondents 
Burden per 
Respondent 
Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent) 
Initial Newly Designated 
ATSs 
46 8 hours 368 hours  
Annual 4 hours 184 hours  
 
2. Burden of Rules 302 and 303 of Regulation ATS on Newly Designated 
ATSs 
As discussed in the Proposing Release, the Commission estimates an annual burden of 45 
hours per respondent to comply with Rule 302
189
 and 15 hours to comply with Rule 303.
190
  In 
 
187
 The Commission’s currently approved baseline for the average initial compliance burden is 8 hours 
(Attorney at 7 hours + Compliance Clerk at 1 hour).  See Rule 301 PRA Supporting Statement.     
188
 The Commission’s currently approved baseline for the average ongoing compliance burden is 4 hours 
(Attorney at 2 hours + Compliance Clerk at 2 hours).  See id. 
189
 The Commission’s currently approved baseline for the average compliance burden is 45 hours (Compliance 
Clerk at 45 hours).  See Extension Without Change of a Currently Approved Collection: Rule 302 (17 CFR 
242.302) Recordkeeping Requirements for Alternative Trading Systems; ICR Reference No. 201906-3235-
011; OMB Control No. 3235-0510 (Oct. 24, 2019), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201906-3235-011.  There is no initial 
burden associated with this rule. 
190
 The Commission’s currently approved baseline for the average compliance burden is 15 hours (Compliance 
Clerk at 15 hours).  See Extension Without Change of a Currently Approved Collection: Rule 303 (17 CFR 
242.303) Record Preservation Requirements for Alternative Trading Systems; ICR Reference No. 202101-
3235-010; OMB Control No. 3235-0505 (June 25, 2021), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-010.  There is no initial 
burden associated with this rule. 

71 
 
light of the revision of the Commission’s estimate of Newly Designated ATSs, the Commission 
estimates the following total annual burdens:  
Rule Respondent Type Number of 
Respondents 
Annual 
Burden per 
Respondent 
Total Annual 
Burden 
(Number of 
Respondents × 
Annual Burden 
per Respondent) 
  
Rule 302 Newly Designated 
ATSs 
46 45 hours 2,070 hours   
Rule 303 15 hours 690 hours   
 
3. Burden of Rule 304 of Regulation ATS and Form ATS-N on Newly 
Designated ATSs 
As discussed in the Proposing Release, the Commission estimates an initial compliance 
burden of 136.4 hours per new Form ATS-N respondent
191
 and an annual burden of 47 hours.
192
  
In light of the revision of the Commission’s estimate of Newly Designated ATSs, the 
Commission estimates the following total annual burdens: 
 
191
 The Commission’s currently approved baseline for the average initial compliance burden for each initial 
Form ATS-N is 130.4 hours (currently approved baseline burden to complete an initial Form ATS at 20 
hours: Attorney at 13 hours and Compliance Clerk at 7 hours; see Proposing Release at 15588 n.759) + 
(Part I at 0.5 hour) + (Part II at an average of 29 hours) + (Part III at an average of 78.75 hours) + (Access 
to EDGAR at 0.15 hours) + (Posting link to published Form ATS-N on ATS website at 2 hours) = 130.4 
burden hours.  See Extension Without Change of a Currently Approved Collection: Regulation ATS Rule 
304 and Form ATS-N; ICR Reference No. 202109-  3235-014; OMB Control No. 3235-0763 (January 3, 
2022), available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202109-3235-014 (“Rule 
304  PRA Supporting Statement”).  The aggregate totals by professional, including the  baseline, are 
estimated to be approximately 54.6 hours for an Attorney, 0.5 hours for a  Chief Compliance Manager, 
34.55 hours for a Compliance Manager, 32.25 hours for a  Senior Systems Analyst, 1 hour for a Senior 
Marketing Manager, and 7.5 hours for a  Compliance Clerk.  The Commission estimates that the proposed 
amendments to Form  ATS-N would add an additional burden of 6 hours per filing (Attorney at 2.5 hours,  
Compliance Manager at 1.5 hours, Senior Systems Analyst at 1.5 hours, and Compliance  Clerk at 0.5 
hours), and therefore the average compliance burden for each new Form  ATS-N filer would be 136.4 
hours.  See Proposing Release at section V.B and section VII.E (discussing proposed changes). 
192
 The currently approved baseline for filing amendments to Form ATS-N is 47 hours ((Attorney at 5.5 hours 
+ Compliance Manager at 2 hours + Compliance Clerk at 1.9 hours) × 5 amendments a year).  See Rule 
304 PRA Supporting Statement. 

72 
 
Burden Type Respondent Type Number of 
Respondents 
Burden per 
Respondent 
Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent, 
rounded to 
nearest 0.5 
hours) 
Initial Newly Designated 
ATSs 
9 136.4 hours 1,227.5 hours  
Annual 47 hours 423 hours  
 
4. Burden of Rule 15b1-1 and Form BD on Newly Designated ATSs 
As discussed in the Proposing Release, the Commission estimates an initial burden of 
2.75 hours
193
 and an annual burden of 1 hour
194
 per respondent for completing Form BD.  In 
light of the revision of the Commission’s estimate of Newly Designated ATSs, the Commission 
estimates the following total initial and annual burdens: 
 
193
 The Commission’s currently approved baseline for the average initial compliance burden for each Form 
BD is 2.75 hours (Compliance Manager at 2.75 hours).  See Extension Without Change of a Currently 
Approved Collection: Form BD and Rule 15b1-1. Application for registration as a broker-dealer; ICR 
Reference No. 201905-3235-016; OMB Control No. 3235-0012 (Aug. 7, 2019), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201905-3235-016. (“Form BD PRA 
Supporting Statement”). 
194
 The Commission’s currently approved baseline for the average ongoing compliance burden for each 
respondent amending Form BD is 0.95 hours (Compliance Manager at 0.33 hours × 2.87 amendments per 
year).  See Form BD PRA Supporting Statement. 

73 
 
Burden Type Respondent Type Number of 
Respondents 
Burden per 
Respondent 
Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent, 
rounded to 
nearest 0.5 
hours) 
 
Initial Newly Designated 
ATSs  
27 2.75 hours 74 hours  
Annual 0.95 hours 25.5 hours  
 
5. Burden of Form ID on Newly Designated ATSs 
As discussed in the Proposing Release, the Commission estimates, with regards to Rule 
101 of Regulation S-T, an initial burden of 0.15 hours
195
 and no annual burden per respondent 
for completing Form ID.  In light of the revision of the Commission’s estimate of Newly 
Designated ATSs, the Commission estimates the following total burdens: 
Respondent Type Number of 
Respondents 
Initial Burden 
per Respondent 
Total Initial Burden 
(Number of 
Respondents × Initial 
Burden per 
Respondent, rounded to 
nearest 0.5 hours)  
 
Newly Designated ATSs 27 0.15 hours 4 hours   
 
6. Burden of Regulation SCI on Newly Designated ATSs 
The Commission does not estimate any Newly Designated ATSs that trade crypto asset 
securities or that have exited, entered, or intend to enter the market since the Commission issued 
 
195
 See Revision of a Currently Approved Collection: Form ID - EDGAR Password; ICR Reference No. 
202104-3235-022; OMB Control No. 3235-0328 (Apr. 29, 2021), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202104-3235-022. 

74 
 
the Proposing Release will be subject to Regulation SCI,
196
 and therefore, the estimates in the 
Proposing Release remain unchanged. 
C. Request for Comments 
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments to:   
39. Evaluate whether the proposed collection of information is necessary for the proper 
performance of the Commission’s functions, including whether the information shall 
have practical utility; 
40. Evaluate the accuracy of the Commission’s estimates of the burden of the proposed 
collection of information;  
41. Determine whether there are ways to enhance the quality, utility, and clarity of the 
information to be collected;   
42. Evaluate whether there are ways to minimize the burden of collection of information 
on those who are to respond, including through the use of automated collection 
techniques or other forms of information technology; and 
43. Evaluate whether the proposed amendments would have any effects on any other 
collection of information not previously identified in this section. 
 Persons submitting comments on the collection of information requirements should direct 
them to the Office of Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, 
and should also send a copy of their comments to Vanessa Countryman, Secretary, Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549-1090, with reference to File 
Number S7-02-22.  Requests for materials submitted to Office of Management and Budget 
 
196
  “Regulation SCI” consists of 17 CFR 242.1000 through 242.1007.   

75 
 
(“OMB”) by the Commission with regard to this collection of information should be in writing, 
with reference to File Number S7-02-22 and be submitted to the Securities and Exchange 
Commission, Office of FOIA/PA Services, 100 F Street NE, Washington, DC 20549-2736.  As 
OMB is required to make a decision concerning the collection of information between 30 and 60 
days after publication, a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication. 
V. Economic Analysis 
A. Introduction 
The Commission received comments on the Proposing Release stating that the 
Commission had not considered the economic effects of the Proposed Rules on New Rule 3b-
16(a) Systems that trade crypto asset securities.
197
  In this section the Commission is 
supplementing the economic analysis provided in the Proposing Release with additional analysis 
that considers the impact of the Proposed Rules on New Rule 3b-16(a) Systems that trade crypto 
asset securities.
198
   
The Commission preliminarily believes that some amount of crypto asset securities trade 
on New Rule 3b-16(a) Systems.  These New Rule 3b-16(a) Systems do not meet the current 
definition of an exchange and thus are not subject to regulation either as a national securities 
 
197
  See GDCA Letter II at 4, 5, and 6; Crypto Council Letter at 2, 3, 4, and 5; McHenry/Huizenga Letter at 2; 
LeXpunK Letter at 3; ADAM Letter II at 13 and 14; Chamber Letter at 4; Coinbase Letter at 2 and 6; a16z 
Letter at 2, 3, 7, 20 and 21; Blockchain Association Letter II at 1 and 7; DeFi Education Fund Letter at 3. 
198
  Exchange Act section 3(f) requires the Commission, when it is engaged in rulemaking pursuant to the 
Exchange Act and is required to consider or determine whether an action is necessary or appropriate in the 
public interest, to consider, in addition to the protection of investors, whether the action will promote 
efficiency, competition, and capital formation.  See 15 U.S.C. 78c(f).  In addition, Exchange Act section 
23(a)(2) requires the Commission, when making rules pursuant to the Exchange Act, to consider among 
other matters the impact that any such rule would have on competition and not to adopt any rule that would 
impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the 
Exchange Act.  See 15 U.S.C. 78w(a)(2). 

76 
 
exchange or an ATS.  By amending Exchange Act Rule 3b-16 to include New Rule 3b-16(a) 
Systems within the definition of exchange, the Proposed Rules would functionally apply 
Regulation ATS to an additional number of entities not currently regulated by it.  This would 
have a number of benefits, including enhanced regulatory oversight and protection for investors, 
a reduction in trading costs and improvement in execution quality, and enhancement of price 
discovery and liquidity.   
The Proposed Rules would also have costs for those entities subject to new requirements, 
including compliance costs associated with filing forms such as Form ATS-N or Form ATS, 
protecting confidential information, keeping certain records, registering as a broker-dealer, and 
complying with the Fair Access Rule and/or Regulation SCI if applicable. 
For purposes of measuring the effects of the proposed rule on participants in crypto asset 
securities markets, this analysis assumes that market participants are compliant with existing 
applicable Commission and FINRA rules, including those requiring registration and the rules and 
regulations applicable to such registered entities.  To the extent that some entities engaged in 
activities involving crypto asset securities are not, but should be, FINRA or Commission 
registered entities, they may incur additional costs to comply with existing rules and registration 
obligations that are distinct from the costs associated with the Proposed Rules and are not 
discussed in this analysis.  Similarly, any benefits from coming into compliance with existing 
rules and registration obligations are also not discussed in this analysis, and effects on efficiency, 
competition, and capital formation may differ from the discussion in this analysis to the extent 
impacted entities do not comply with existing applicable Commission or FINRA rules.  For such 
entities, we expect the benefits and costs specifically associated with the Proposed Rules to be 
the same as those described below as applicable. 

77 
 
B. Baseline 
1. Current State of Crypto Asset Markets 
The global market for crypto assets is valued by some estimates at approximately $900 
billion,
199
 as of December 2022.  Volatility in the price of crypto assets has caused this number 
to fluctuate considerably over the past few years.  For example, in July of 2020 the market was 
estimated to be worth approximately $276 billion, but went on to reach a peak value of 
approximately $3 trillion by November 2021.
200
  A subset of these crypto assets are securities 
with associated activity within the U.S.
201
   
The Commission has limited information regarding crypto asset securities.
202
  This 
limitation is, in part, due to the fact that only a small portion of crypto asset security trading 
 
199
  See, e.g., Global Cryptocurrency Market Cap Charts, CoinGecko, available at 
https://www.coingecko.com/en/global-charts (last visited on Mar. 15, 2023).  
200
  Id. 
201
  The Commission is aware that some amount of activity in the market for crypto assets discussed in this 
Reopening Release is conducted outside the U.S.  Due to unique challenges in analyzing the crypto asset 
market, the Commission faces obstacles to obtaining reliable, comprehensive, and comparable information 
to determine, in this rulemaking, the extent of the activities taking place within the U.S.  For example, 
while the issuance of a crypto asset on a blockchain can be detected by observers of the blockchain, the 
national or international scope of the activities involving this asset is not always readily apparent.  
Furthermore, many of the platforms on which crypto assets are traded do not provide publicly available 
information that could be used to inform the determination about the scope of their operations.  This is due, 
in part, to the significant amount of trading in crypto asset securities that may be occurring in non-
compliance with the federal securities laws.  See also supra note 26
 (discussing crypto assets that are 
securities).     
202
  See, e.g., FSOC Report, supra note 30 (“The crypto-asset ecosystem is characterized by opacity that creates 
challenges for the assessment of financial stability risks.”); Crypto-Assets Treasury Report, supra note 75, 
at 12 (finding that data pertaining to “off-chain activity” is limited and subject to voluntary disclosure by 
trading platforms and protocols, with protocols either not complying with or not subject to obligations “to 
report accurate trade information periodically to regulators or to ensure the quality, consistency, and 
reliability of their public trade data”); Fin. Stability Bd., Assessment of Risks to Financial Stability from 
Crypto-assets 18-19 (Feb. 16, 2022) (“FSB Report”), available at https://www.fsb.org/wp-
content/uploads/P160222.pdf (  finding that the difficulty in aggregating and analyzing available data in the 
crypto asset space “limits the amount of insight that can be gained with regard to the [crypto asset] market 
structure and functioning,” including who the market participants are and where the market’s holdings are 
concentrated, which, among other things, limits regulators’ ability to inform policy and supervision); 
Raphael Auer et al., Banking in the Shadow of Bitcoin? The Institutional Adoption of Cryptocurrencies 4, 9 
(Bank for Int’l Settlements, Working Paper No. 1013, May 2022), available at 
https://www.bis.org/publ/work1013.pdf (stating that data gaps, which can be caused by limited disclosure 
 

78 
 
activity is occurring within entities that are registered with the Commission and any of the SROs, 
or operating pursuant to the Regulation ATS exemption.
203
  For example, there are currently no 
special purpose broker-dealers authorized to maintain custody of crypto asset securities.
204
  This 
information limitation is also, in part, due to the significant trading activity in crypto asset 
securities that may be occurring in non-compliance with the federal securities laws.
205
 
 
requirements, risk undermining the ability for holistic oversight and regulation of cryptocurrencies); Int’l 
Monetary Fund, The Crypto Ecosystem and Financial Stability Challenges, in Global Financial Stability 
Report 41, 47 (Oct. 2021), available at https://www.imf.org/- 
/media/Files/Publications/GFSR/2021/October/English/ch2.ashx (  finding that crypto asset service providers 
provide limited, fragmented, and, in some cases, unreliable data, as the information is provided voluntarily 
without standardization and, in some cases, with an incentive to manipulate the data provided). 
203
  For a description of the requirements of the Regulation ATS exemption, see Proposing Release at section 
II.E.2. 
204
  For background on 17 CFR 240.15c3-3 (“Rule 15c3-3”), as it relates to crypto asset securities, see U.S. 
Sec. & Exch. Comm’n, Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities (July 8, 
2019) (“Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities”), available at 
https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-
securities; Fin. Indus. Regul. Auth., SEC Staff No-Action Letter, ATS Role in the Settlement of Digital 
Asset Security Trades (Sept. 25, 2020), available at https://www.sec.gov/divisions/marketreg/mr-
noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.  Staff reports, 
Investor Bulletins, and other staff documents (including those cited herein) represent the views of 
Commission staff and are not a rule, regulation, or statement of the Commission.  The Commission has 
neither approved nor disapproved the content of these staff documents and, like all staff statements, they 
have no legal force or effect, do not alter or amend applicable law, and create no new or additional 
obligations for any person.  The Commission issued a statement describing its position that, for a period of 
five years, special purpose broker-dealers operating under the circumstances set forth in the statement will 
not be subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have 
obtained and maintained physical possession or control of customer fully paid and excess margin crypto 
asset securities for purposes of Rule 15c3-3(b)(1) under the Exchange Act.   See Commission Statement on 
Custody of Digital Asset Securities by Special Purpose Broker-Dealers.  To date, no such special purpose 
broker-dealer registration applications have been granted by FINRA. 
205
  See also FSOC Report, supra note 30, at 5, 87, 94, 97 (emphasizing the importance of the existing financial 
regulatory structure while stating that certain digital asset platforms may be listing securities while not in 
compliance with exchange, broker-dealer, or other registration requirements, which may impose additional 
risk on banks and investors and result in “serious consumer and investor protection issues”); Crypto-Assets 
Treasury Report, supra note 
49, at 26, 29, 39, 40 (stating that issuers and platforms in the digital asset 
ecosystem may be acting in non-compliance with statutes and regulations governing traditional capital 
markets, with market participants that actively dispute the application of existing laws and regulations, 
creating risks to investors from non-compliance with, in particular, extensive disclosure requirements and 
market conduct standards); FSB Report, supra note 
202, at 4, 8, 18 (stating that some trading activity in 
crypto assets may be failing to comply with applicable laws and regulations, while failing to provide basic 
investor protections due to their operation outside of or in non-compliance with regulatory frameworks, 
thereby failing to provide the “market integrity, investor protection or transparency seen in appropriately 
regulated and supervised financial markets”). 

79 
 
Because of this limited information, and because, as the Commission understands, the 
trading of crypto asset securities utilizes different technology and methods of operation than is 
utilized in markets for non-crypto asset securities, the Commission has a greater degree of 
uncertainty in characterizing the baseline for the crypto asset market than it does in 
characterizing the baseline for non-crypto asset securities. 
It is impossible to determine the true market turnover
206
 for crypto assets, because, 
among other reasons, the crypto asset market reportedly is characterized
207
 by rampant wash 
trading.
208
  The Commission does possess data on reported trades from many crypto asset 
platforms, but there is no reliable way to determine whether trades reported are actually between 
two different market participants or are the result of wash trading.  Estimates of how much of the 
total crypto asset market volume is attributable to wash trades vary but range as high as 95%.
209
  
The Commission believes that with such pervasive wash trading, any reported volume figures are 
significantly misleading.   
 
206
  That is, the amount of crypto assets that actually change hands between distinct market participants. 
207
  See, e.g., Lin William Cong, Xi Li, Ke Tang & Yang Yang, Crypto Wash Trading (Nat’l Bureau of Econ. 
Rsch., Working Paper No. 30783, Dec. 2022), available at https://www.nber.org/papers/w30783, Andrew 
Singer, Cleaning Up Crypto Exchange Wash Trading Will Take Global Regulation, Cointelegraph (July 29, 
2020), available at  https://cointelegraph.com/news/cleaning-up-crypto-exchange-wash-trading-will-take-
global-regulation (  according to Gerald Chee, head of research at CoinMarketCap.com, “there is no way to 
tell if an exchange is inflating volume or not by merely looking at the volume they report” because “[t]he 
only way to detect ‘wash trades’ would require access to ‘account-ID’ data” and “only exchanges have 
access to these [data]”); see also, e.g., Friedhelm Victor & Andrea Marie Weintraud, Detecting and 
Quantifying Wash Trading on Decentralized Cryptocurrency Exchanges (Working Paper, Feb. 13, 2021), 
available at https://arxiv.org/pdf/2102.07001.pdf.  
208
  The term wash trading refers to the practice of creating misleading trade reports and delivering such reports 
to the public, usually to deceive market participants into believing volume in a particular instrument is 
higher than it actually is.  This is often arranged by trading against one’s own limit orders, or buy swapping 
the instrument back and forth with a collaborator.     
209
  See, e.g., Bitwise Asset Management, Presentation to the Securities and Exchange Commission (Mar. 19, 
2019), available at https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-
183434.pdf (  stating that only 4.5% of approximately $6 billion of reported trading in Bitcoin was real).  
See also Javier Paz, More Than Half of All Bitcoin Trades are Fake, Forbes (Aug. 26, 2022), available at 
https://www.forbes.com/sites/javierpaz/2022/08/26/more-than-half-of-all-bitcoin-trades-are-
fake/?sh=471e51be6681.  

80 
 
Because such wash trading renders volume data unusable, the Commission is also unable 
to determine the share of trading that takes place on various types of platforms; or the amount of 
concentration in volume among various exchanges, including whether a given exchange has any 
legitimate volume at all. 
It is likewise impractical to determine market turnover of crypto assets using data on 
transfer of crypto assets between wallets that is available via public blockchains.  The 
Commission preliminarily believes that a direct analysis of blockchain data would be unable to 
reliably determine how many crypto assets are actually moving between different entities.  
Among other complications, the Commission understands that it is a common practice for a 
single entity participating in crypto asset trading to control multiple wallets and to move funds 
between those wallets.  There may be no way of determining that movement between such 
wallets represents the exchange of crypto assets between distinct entities.  Additionally, because 
transactions on the blockchain can be costly and slow, the Commission understands crypto assets 
to sometimes trade and settle off-chain, with only changes between public addresses eventually 
appended to the blockchain.  Thus, even if one could determine changes in ownership from 
transfers on the blockchain, that might not reflect all changes of ownership that occur on off-
chain platforms.   
a. Platforms in the Market for Crypto Assets 
The Commission is unable to reliably determine the amount of trading in crypto assets 
that takes place through platforms, or to quantify their share of the market for trading services in 
crypto assets.  This is due to the wash trading problem in the crypto asset market discussed 

81 
 
above.
210
  The Commission is also unable to reliably determine the number of platforms 
operating in the crypto asset market.
211
   
Some platforms may operate through the use of smart contracts.
212
  A smart contract may 
be designed to accept and integrate changes to its functionality, or it may be immutable.
213
  
Different designs are used to control changes to a smart contract’s functionality, including 
designs that enable only very specific entities to submit changes to the smart contract, as well as 
designs where a number of market participants receive tokens theoretically enabling them to vote 
on whether a change proposed by a developer is integrated or not.
214
  The Commission 
understands that these tokens, or other tokens, may also entitle their holders to additional 
benefits, which may include a claim on some portion of the transaction fees paid to the smart 
contract. 
 
210
  See supra section V.B.1.  The difficulties in computing volume is also due in part to the significant amount 
of trading in crypto asset securities that may be occurring in non-compliance with federal securities laws.  
See supra section V.B.1. 
211
  While the Commission is uncertain about the total number of platforms, some existing estimates of this 
number are over 200 for certain kinds of platforms, and over 250 for other kinds of platforms. See, e.g., 
Top Cryptocurrency Spot Exchanges, CoinMarketCap, available at 
https://coinmarketcap.com/rankings/exchanges/, Top Cryptocurrency Decentralized Exchanges, 
CoinMarketCap, available at https://coinmarketcap.com/rankings/exchanges/dex/; see also Bloomberg 
Letter II at 3; see supra section V.B.1. discussing difficulties in determining the size and scope of the crypto 
asset market generally, including issues related to foreign activity and non-compliance.  See infra section 
V.B.1.c (where the Commission has provided a rough estimate of the number of Communication Protocol 
Systems in the market for crypto asset securities). 
212
  See supra note 15.  Smart contracts generally can be appended to a blockchain capable of running such 
programs by anyone with the ability to submit transactions to it.  The Commission understands that not all 
blockchains are initially designed with the intention of enabling smart contract functionality. 
213
  By “immutable,” the Commission means that the smart contract cannot be changed through the processes 
that are part of the typical functioning of a blockchain.  The miners or validators of the blockchain, by 
deviating from such processes, can make alterations to the blockchain that alter interactions with 
“immutable” smart contracts.  See infra section V.C.2.c.i for related discussion. 
214
  Such tokens are sometimes referred to as governance tokens. 

82 
 
i. Operations of Platforms 
The Commission understands that some platforms for crypto assets operate limit order 
books to facilitate trading among their customers.  Some operators of platforms also operate an 
affiliated so-called over-the-counter system or an RFQ system.
215
  Colocation options are 
possible at some platforms.
216
 
The Commission preliminarily believes that platforms can be a source of pricing 
information for the crypto assets that trade on those platforms.  Pricing information from off-
chain platforms is sometimes supplied to blockchains to serve as a reference price for various 
entities using smart contracts in their systems.
217
  
Some entities run limit order books on the blockchain, by utilizing smart contracts that 
accept limit orders, display them, and match limit orders with market orders.  In a system using a 
limit order book where all activity takes place on-chain, traders must pay for blockchain 
transactions for each message they wish to send to the limit order book, in addition to any fees 
the limit order book may charge.  This can increase the sources of transaction cost relative to a 
platform that does not run its limit order book on-chain.  Some entities with an on-chain 
component to their system may run their limit order books in whole or in part off-chain, with 
only final transactions being posted to the blockchain.  This may help both reduce total fees paid 
by users and issues of latency in updating on-chain records.   
 
215
  See Elias Ahonen, What Really Goes on at a Crypto OTC Desk?, Cointelegraph (May 16, 2022), available 
at https://cointelegraph.com/magazine/explained-what-really-crypto-otc-desk/. 
216
  See Anna Baydakova, High-Frequency Trading is Newest Battleground in Crypto Exchange Race, 
CoinDesk (July 8, 2019), available at https://www.coindesk.com/markets/2019/07/08/high-frequency-
trading-is-newest-battleground-in-crypto-exchange-race/.   
217
  See, e.g., Andrei Anisimov & Luke Youngblood, Introducing the Coinbase Price Oracle, Coinbase (Apr. 
23, 2020), available at https://www.coinbase.com/blog/introducing-the-coinbase-price-oracle.  See also 
infra section V.B.1.a for further discussion of using price information from centralized platforms in DeFi 
settings. 

83 
 
An AMM is designed as an alternative to a limit order book.
218
  An AMM typically 
offers liquidity by exchanging one crypto asset for another,
219
 with the exchange rate typically 
set according to a pre-specified formula.  In some cases, this formula is set only by a 
mathematical function of the inventory the AMM possesses of each crypto asset in the pair,
220
 
while in other cases the AMM may incorporate information from an off-chain platform to help 
inform the exchange rate.  The inventory that an AMM uses to fill orders is typically supplied by 
market participants, and the details of the smart contract may specify compensation for supplying 
inventory (e.g., by dividing up transaction fees among the inventory suppliers).  In some cases, 
the AMM may permit the inventory suppliers to restrict the use of their liquidity to pre-specified 
price ranges.  
The Commission understands that while some platforms provide markets that enable the 
trading of crypto assets for dollars or other fiat currency, platforms for crypto assets typically 
offer markets in trading pairs as well.  This means that, for example, an order on a limit order 
book may offer to buy or sell units of a base asset in exchange for a quote asset with the price 
expressed in units of the quote asset.
221
  In addition, some platforms focus on facilitating trades 
where the transaction takes place entirely “on-chain.”  In this case, the platform is unable to 
 
218
  AMMs typically make use of smart contracts to enable their functionality, and as a consequence may run 
on-chain to a significant degree.   
219
  The inventory held by an AMM for providing liquidity is typically called a pool.  A single AMM protocol 
will typically have many pools, one for each combination of crypto asset trades offered.  For example, for 
crypto assets A, B, and C, a single AMM protocol might have a pool that offers to trade A for B and vice 
versa, another pool that offers to trade B for C and vice versa, and a third pool that offers to trade A for C 
and vice versa.  Some AMMs can have pools with more than two assets that permit trades in combinations 
of the assets in the pool.  For example, a pool might contain A, B, and C, and permit trades such as 
exchanging A and B for C. 
220
  In the case where the AMM offers pools with more than two assets, the formula may be based on the 
amount of each asset held in the pool. 
221
  See supra section II.A for additional discussion of pairs trading. 

84 
 
facilitate crypto asset markets using fiat currency.  Instead, such systems can only facilitate 
trading in crypto asset pairs.  
The Commission understands that the majority of platforms typically require crypto 
assets and fiat currency to be provided to the platform in advance of any trading activity.  This 
requirement can help ensure the successful completion of trades.   
A variety of market participants use platforms to trade crypto assets.  The Commission 
understands that retail investors are significant users of platforms.
222
 
 
The Commission also 
understands that some platforms may also be used to fill the orders of institutional investors, and 
may have market makers participating as well.  
The Commission understands that the speed of processing on some platforms may be 
faster when compared to transfers on some blockchains or systems that involve blockchain 
processing as part of functionality,
223
 both of which are reliant on blockchain transactions to 
function.  The Commission understands that there is often a queue of transactions waiting to be 
appended to a blockchain, and transactions being sent to a trading platform running on that 
blockchain may have to wait in that queue to be processed. 
Trading using systems that involve sending information to a blockchain
224
 as a means of 
interacting with the system may expose the market participant to information leakage of a kind 
that is not present on platforms or New Rule 3b-16(a) Systems that do not require interacting 
 
222
  See, e.g., Michel Rauchs, Apolline Blandin, Kristina Klein, Gina Pieters, Martino Recanatini & Bryan 
Zhang, 2nd Global Cryptoasset Benchmarking Study (Dec. 2018), available at 
https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-
benchmarking.pdf, showing that globally, retail investors are 70% of “exchange-only” crypto business 
users and 78% of “multi-segment” crypto businesses.  See also 2022 10-K, Coinbase (Feb. 21, 2023), 
available at https://www.sec.gov/Archives/edgar/data/1679788/000167978823000031/coin-20221231.htm 
showing that for one centralized platform, retail investors accounted for approximately 20% of trading 
volume in 2022. 
223
  See infra section V.B.1.c. 
224
  For example, sending a transaction to an AMM running on-chain. 

85 
 
through a blockchain.  The Commission understands that messages to be appended to a 
blockchain often end up in queue that is publicly viewable, which then exposes the market 
participant to information leakage.   
Furthermore, when trading on a system that runs some of its functionality on-chain, there 
is a risk of unexpected or undesired execution results.  Specifically, a market participant may 
send an order to a blockchain intending to interact with the on-chain portion of the system based 
on market conditions which will be altered by other transactions that are already queued but not 
yet processed.
225
 
Some ATSs, which have an active Form ATS on file with the Commission, specify in 
their Form ATS disclosures that they trade or intend to trade crypto asset securities.  
ii. Regulatory Baseline  
The provider of a platform that meets the current criteria of Rule 3b-16 of the Exchange 
Act is required to register as a national securities exchange or operate pursuant to the Regulation 
ATS exemption, which involves registering as a broker-dealer and complying with Regulation 
ATS.
226
  The regulatory requirements and the associated compliance costs for platforms that 
trade crypto asset securities vary according to whether they are regulated as a national securities 
exchange or ATS. 
 
225
  The Commission understands that some platforms which have this risk permit transaction messages to set 
limits to help mitigate the risk of unexpected execution results.  Although the problem of messages already 
en route or queued for processing causing unexpected changes to a trading platform for other users is a 
problem on off-chain platforms as well, the Commission understands that the problem may be more severe 
on platforms which require interaction through a blockchain because the longer processing times can lead 
to larger queues.   
226
  See supra section V.B.1.a.i, discussing ATSs that trade or intend to trade crypto asset securities.  There are 
no registered national securities exchanges which trade crypto asset securities.  See supra section V.B.1. 

86 
 
A platform that trades crypto asset securities could choose to register as a national 
securities exchange pursuant to sections 5 and 6 of the Exchange Act.
227
  The compliance costs 
associated with being a national securities exchange are generally significantly higher than those 
of being an ATS.  In contrast to an ATS, a national securities exchange, as an SRO, incurs 
compliance costs associated with, among other things, setting standards of conduct for its 
members, administering examinations for compliance with these standards, coordinating with 
other SROs with respect to the dissemination of consolidated market data, and generally taking 
responsibility for enforcing its own rules and the provisions of the Exchange Act and the rules 
and regulations thereunder.  Furthermore, under section 19(b) of the Exchange Act, a national 
securities exchange incurs compliance costs by filing any proposed changes to its rules with the 
Commission, which the Commission has the authority to approve or disapprove.
228
 
A platform that meets the current definition of an exchange and operates pursuant to the 
ATS exemption must comply with Regulation ATS, and incurs costs related to compliance with 
these requirements.  To operate under the exemption, an ATS must register as a broker-dealer
229
 
and comply with the filing and conduct obligations associated with being a registered broker-
 
227
  Pursuant to section 6 of the Exchange Act, national securities exchanges must establish rules that generally: 
(1) are designed to prevent fraud and manipulation, promote just and equitable principles of trade, and 
protect investors and the public interest; (2) provide for the equitable allocation of reasonable fees; (3) do 
not permit unfair discrimination; (4) do not impose any unnecessary or inappropriate burden on 
competition; and (5) with limited exceptions, allow any broker-dealer to become a member.  Section 6(b) 
of the Exchange Act requires, among other things, that the national securities exchange be so organized and 
have the capacity to carry out the purposes of the Exchange Act and to comply and enforce compliance by 
its members, and persons associated with its members, with the federal securities laws and the rules of the 
exchange.  See section 6(b) of the Exchange Act.   
228
  See generally section 19(b) of the Exchange Act. 
229
  The broker-dealer operator controls all aspects of the operation of the ATS and is legally responsible for 
ensuring that the ATS complies with applicable federal securities laws and the rules and regulations 
thereunder, including Regulation ATS.  See NMS Stock ATS Adopting Release at text accompanying note 
663. 

87 
 
dealer, including membership in an SRO, such as FINRA,
230
 and compliance with the SRO’s 
rules.
231
  Upon becoming a broker-dealer, the operator of an ATS is  subject to certain broker-
dealer requirements with respect to maintaining net capital, reporting, and recordkeeping.
232
  An 
ATS is subject to Commission examinations and FINRA examinations and surveillance, trade 
reporting obligations, and certain investor protection rules.
233
  An ATS is  required to establish 
adequate written safeguards and written procedures
234
 to protect subscribers’ confidential trading 
information.
235
  Furthermore, an ATS is subject to certain reporting and disclosure requirements, 
as applicable.  Under Rule 301(b)(2) of Regulation ATS, an ATS that does not trade NMS stocks 
must file Form ATS.
236
  An ATS must file quarterly Form ATS-R to report to the Commission, 
among other things, trading volume, securities traded, and a list of subscribers that were 
participants during the relevant quarter.
237
  An ATS is  subject to recordkeeping and record 
preservation requirements under Rules 302 and 303 of Regulation ATS, respectively.    
 
230
  See s ection 15(b)(8) of the Exchange Act. 
231
  See Regulation ATS Adopting Release, supra note 3, at 70903. 
232
  Registered broker-dealers would be subject to requirements under certain Exchange Act rules, such as Rule 
15c3-1, Rule 17a-1, Rule 17a-3, Rule 17a-4, and Rule 17a-5.    
233
  Under the federal securities laws and FINRA rules, registered broker-dealers (e.g., broker-dealer operators 
of ATSs) are subject to, among other things: (1) various disclosure and supervision obligations; (2) anti-
money laundering obligations (including suspicious activity reporting); (3) FINRA OTC trade reporting 
requirements, including requirements to maintain membership in, or maintain an effective clearing 
arrangement with a participant of, a clearing agency registered under the Exchange Act; and (4) 
Commission examinations and FINRA examinations and surveillance of members and markets that its 
members operate. 
234
  These written safeguards and written procedures must include, among other things:  limiting access to the 
confidential trading information of subscribers to those employees of the ATS who are operating the 
system or responsible for its compliance with these or any other applicable rules; and implementing 
standards controlling employees of the ATS trading for their own accounts. 
235
  See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release, supra note 7, section VI.  
236
  Under Rule 304 of Regulation ATS, NMS Stock ATSs are required to file public Form ATS-N (instead of 
filing Form ATS), which is subject to a Commission review and effectiveness process. 
237
  See Rule 301(b)(9); Form ATS-R. 

88 
 
In addition, an ATS that trades in crypto asset securities that are corporate debt securities, 
and meets certain volume thresholds, is required to comply with the Fair Access Rule and Rule 
301(b)(6) of Regulation ATS.  The requirements of Rule 301(b)(6) are similar to, but with less 
benefits and with significantly less costs than, the requirements of Regulation SCI.
238
  Such an 
ATS must be a member of FINRA, and would accordingly be required to report to the Trade 
Reporting and Compliance Engine (TRACE) transactions in corporate bonds.
239
 
An ATS that trades crypto asset securities that are municipal securities is  similarly 
required to comply with the Fair Access Rule and with Rule 301(b)(6) of Regulation ATS if it 
meets certain volume thresholds.  Additionally, the broker-dealer operator of such an ATS must 
register with the Municipal Securities Rulemaking Board (MSRB) and accordingly is required to 
report municipal bond trades to the MSRB’s Real-Time Transaction Reporting System 
(RTRS).
240
 
A platform that operates as an NMS Stock ATS and trades in crypto asset securities that 
are NMS stocks is required to file public Form ATS-N.  Such an ATS must comply with the 
requirements of Regulation SCI and the Fair Access Rule if it meets the corresponding volume 
thresholds.  Additionally, because trades in NMS stocks that are transacted off-exchange must be 
reported to one of three FINRA Trade Reporting Facilities, such an NMS Stock ATS would have 
the reporting obligation in most cases where it handles the execution of the trade.  Such an ATS 
 
238
  The scope and requirements of Rule 301(b)(6) are narrower than those of Regulation SCI.  For example, 
Rule 301(b)(6) of Regulation ATS applies to a narrower set of systems, as compared to Regulation SCI.  
Rule 301(b)(6) of Regulation ATS applies only to systems that support order entry, order routing, order 
execution, transaction reporting, and trade comparison, which is narrower than the definition of SCI 
system.  Also, Rule 301(b)(6) does not require ATSs to maintain a backup facility, whereas Regulation SCI 
includes such a requirement.   
239
  See Proposing Release at 15604 n.871 and accompanying text. 
240
  See id. at 15608. 

89 
 
that receives or originates orders in Eligible Securities
241
 is required to report any Reportable 
Event
242
 to the Consolidated Audit Trail.
 
 
A platform that is an ATS and trades in crypto asset equity securities that are not NMS 
stocks is required to comply with Regulation SCI and the Fair Access Rule if it meets certain 
volume thresholds, be a member of FINRA, and comply with associated reporting obligations. 
AMMs
243
 that meet the definition of a dealer or government securities dealer under 
sections 3(a)(5) and 3(a)(44) of the Exchange Act are subject to the requirements applicable to 
dealers under federal securities laws and FINRA rules.
244
  These AMMs would incur compliance 
costs associated with broker-dealer requirements discussed in section V.B.1.a.ii. 
Regulated platforms do not offer trading in non-cash markets for crypto assets in which 
one of the assets is a security and the other one is not a security.
245
   
 
241
  The CAT NMS Plan is a national market system plan approved by the Commission pursuant to Section 
11A of the Exchange Act and the rules and regulations thereunder.   See Securities Exchange Act Release 
No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016).   The CAT NMS Plan and subsequent 
amendments to the Plan are available at https://catnmsplan.com/about-cat/cat-nms-plan.  Section 1.1 of the 
CAT NMS Plan defines Eligible Securities as “(a) all NMS Securities; and (b) all OTC Equity Securities,” 
where OTC Equity Securities are defined as any equity security, other than an NMS Security, subject to 
prompt last sale reporting rules of a registered national securities association and reported to one of such 
association’s equity trade reporting facilities.”  This includes both OTC Equity Securities and transactions 
in Restricted Equity Securities effected pursuant to Securities Act Rule 144A. 
242
  According to Section 1.1 of the CAT NMS Plan, “Reportable Event” includes, but is not limited to, the 
original receipt or origination, modification, cancellation, routing, execution (in whole or in part) and 
allocation of an order, and receipt of a routed order. See CAT NMS Plan, supra note 241
. 
243
  Some AMMs may operate as single dealer platforms.  A single dealer platform that meets  the requirement 
of existing Exchange Act Rule 3b-16(b)(2) and Rule 3b-16(b)(2) as proposed to be amended, would be 
excluded from the Exchange Act Rule 3b-16(a) and thus not fall within the definition of exchange.  In 
addition, the proposed amendments to Rule 3b-16 do not change the registration obligations of a person 
that meets the definition of a dealer or government securities dealer under sections 3(a)(5) and 3(a)(44) of 
the Exchange Act.   
244
  The Commission encourages commenters to review the Commission’s proposal, “Further Definition of “As 
a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer,” Securities 
Exchange Act Release No. 94524 (Mar. 28, 2022), 87 FR 23054 (Apr. 18, 2022) to determine whether it 
might affect their comments on this Reopening Release. 
245
  There is a significant amount of trading in crypto asset securities that may be occurring in non-compliance 
with federal securities laws.  See supra section V.B.1. 

90 
 
b. New Rule 3b-16(a) Systems in the Market for Crypto Assets 
Securities 
The Commission understands that some amount of trading in crypto asset securities is 
facilitated through New Rule 3b-16(a) Systems.
246
  The Commission lacks information on the 
entities involved providing New Rule 3b-16(a) Systems in the market for crypto asset securities, 
and consequently, is uncertain as to the precise number of such entities.  Nevertheless, the 
Commission is providing a rough estimate that there are 15-20 New Rule 3b-16(a) Systems 
trading crypto asset securities.
247
  The Commission requests comment on the number of New 
Rule 3b-16(a) Systems in the market for crypto asset securities.  The Commission lacks data on 
the share of trades in crypto asset securities that are conducted in this way, and requests 
comment on this issue.   
The Commission is uncertain as to the range of specific communication protocols used 
for trading crypto assets.
248
  The Commission requests comment on the types of protocols used 
in trading crypto assets. 
Some entities provide New Rule 3b-16(a) Systems that may run part of the system on-
chain (for example, by using smart contracts).  A New Rule 3b-16(a) System that utilizes such 
technology may possess some of the same features as other systems using that technology 
described in section V.B.1.a.   
 
246
  See supra section V.B.1.  Additionally, one commenter states that the proposed amendments to the 
definition of exchange, specifically the phrasing “to include systems that offer the use of non-firm trading 
interest and communication protocols to bring together buyers and sellers of securities,” could be read to 
encompass “unhosted protocols,” which the Commission understands to refer to DeFi platforms.  See 
Delphi Digital Letter at 11; see also LeXpunK Letter at 3. 
247
  The Commission received comments stating that we had not included an estimate of the number of crypto 
asset security market participants that would be included in the amended definition of exchange.  See 
GDCA Letter II at 6, Delphi Digital Letter at 11, McHenry/Huizenga Letter at 2.   
248
  In the Proposing Release, the Commission discussed common kinds of protocols and their economic 
significance in their respective markets, see, e.g., Proposing Release sections VIII.B.1, VIII.B.2.b, 
VIII.B.3.b, VIII.B.4.b, VIII.B.5.d, VIII.B.6.b, and VIII.B.7. 

91 
 
The Commission understands that when running a New Rule 3b-16(a) System that 
involves on-chain technology, the actual negotiation portion of the system (e.g. the RFQ 
functions) may be run “off-chain,” that is, without using the blockchain for computation and 
communication.  Once negotiation is finished, the transaction may then be completed using 
blockchain-based systems.   
It is also possible that some New Rule 3b-16(a) Systems may be run entirely on-chain.  
For example, there may be smart contracts that enable the sending of RFQs, responses to the 
RFQ, and finalizing of transactions all through communicating with a set of smart contracts by 
sending messages to the blockchain. 
The Commission preliminarily believes that New Rule 3b-16(a) Systems with on-chain 
components to their system generally facilitate trades that are not cash-based.  That is, the trades 
exchange one crypto asset security for another crypto asset.  The Commission preliminarily 
believes that it is possible that New Rule 3b-16(a) Systems that do not use any on-chain elements 
in their systems may also facilitate trades that are non-cash based. 
New Rule 3b-16(a) Systems do not meet the current definition of exchange under Rule 
3b-16, and therefore are not currently required to register as national securities exchanges or 
comply with Regulation ATS.
249
 
c. Other Methods of Trading in Crypto Assets 
Market participants may transact in crypto assets via bilateral voice trading or electronic 
chat messaging.
250
  The Commission understands that such interactions may be with a market 
maker in crypto assets, or with some other market participant.  Such methods of trading permit 
 
249
  See supra section V.B.1.a.ii describing the rules of Regulation ATS, as well as rules applicable to national 
securities exchanges. 
250
  See supra section V.B.1. 

92 
 
negotiation on price and size.  The Commission lacks information on current crypto asset market 
practice, and requests comment on this issue. 
Bilateral voice trading may provide flexibility to traders and reduce information leakage.  
For these reasons, the Commission preliminarily believes it may be a useful method for trading 
crypto assets in large blocks.  The Commission requests comment on the role of bilateral voice 
trading in the market for crypto assets. 
d. Competition for Crypto Asset Trading Services 
The various platforms available for trading crypto assets, as well as New Rule 3b-16(a) 
Systems, compete to attract order flow.  The Commission preliminarily believes that market 
participants seeking liquidity in crypto assets may prefer either one particular platform or method 
of crypto asset trading or multiple platforms or methods.  A single order may be split and filled 
using the different methods.  It is also possible that some methods may be used more than others 
in certain segments of market participants.   
Because New Rule 3b-16(a) Systems are not currently subject to the same regulation as 
organizations, associations, or groups of persons that meet the existing definition of “exchange” 
under Rule 3b-16, they often trade pairs, which can include a combination of securities and non-
securities.  This may give New Rule 3b-16(a) Systems a competitive advantage over platforms 
that currently meet regulatory requirements for exchanges.   
Some of the methods for trading crypto asset securities involve platforms that are 
currently subject to regulation as an ATS or national securities exchange.
251
  New Rule 3b-16(a) 
Systems, in contrast, are not subject to such regulation.  This may have an impact on competition 
 
251
  See supra section V.B.1.a discussing such platforms and the regulations to which they are subjected.  Also, 
see supra section V.B.1.a.i, discussing ATSs that trade or intend to trade crypto asset securities.  Today, 
there are no registered national securities exchanges that trade crypto asset securities.  See supra section 
V.B.1. 

93 
 
for order flow between these two groups of platforms.  For example, platforms that are ATSs or 
national securities exchanges may offer the benefits of investor protections associated with these 
regulations to customers in ways that New Rule 3b-16(a) Systems do not.  It is also the case that 
the compliance costs for such regulations may burden current ATSs and national securities 
exchanges in a way that disadvantages them in competing with New Rule 3b-16(a) Systems. 
C. Economic Effects 
The Commission discussed the economic effects of the Proposed Rules on general 
activity involving securities in the Proposing Release.  In this section, the Commission discusses 
the economic effects of the Proposed Rules on activity involving crypto asset securities.  
The Commission is relying on the analysis in the Proposing Release to form the basis for 
its discussion of the effects of the Proposed Rules for systems trading crypto asset securities.
252
  
This is because the Commission believes that New Rule 3b-16(a) Systems that trade crypto asset 
securities are broadly similar in their functions to functions of other New Rule 3b-16(a) Systems.  
The following sections include discussion of the extent to which we believe these effects may 
deviate from those discussed in the Proposing Release for the market for crypto asset securities.  
Throughout the discussion in this Reopening Release, the Commission has a greater degree of 
uncertainty in its analysis of the costs that the Proposed Rules would impose on market 
participants for crypto asset securities than it did in its discussion of costs for non-crypto asset 
securities.  This is because the Commission has less data on the functioning of the market for 
crypto asset securities.
253
   
 
252
  See id. 
253
  See supra section V.B.1. 

94 
 
As discussed in the Proposing Release,
254
 a New Rule 3b-16(a) System could choose to 
register as an exchange rather than choose to comply with the Regulation ATS exemption.  The 
Commission believes that New Rule 3b-16(a) Systems that trade crypto asset securities would 
likely elect to register as a broker-dealer and comply with Regulation ATS because the 
regulatory costs associated with registering and operating as an exchange would be higher than 
those associated with registering as a broker-dealer and complying with Regulation ATS.
255
  
One commenter agrees with the Commission that any entity captured as a New Rule 3b-
16(a) System “would likely prefer to be regulated as an ATS as opposed to an exchange.”
256
 
1. Benefits 
The Commission believes that the benefits detailed in the Proposing Release
257
 would 
accrue in broadly the same manner to market participants who trade in crypto asset securities as 
they would to market participants who trade in the securities discussed in the Proposing Release.  
This is because the Commission believes that New Rule 3b-16(a) Systems that trade crypto asset 
securities are broadly similar in their functions to functions of other New Rule 3b-16(a) Systems.  
However, throughout the discussion in this Reopening Release, the Commission has a greater 
degree of uncertainty in its analysis of the benefits that the Proposed Rules would provide to 
market participants in the market for crypto asset securities than it did in its discussion of 
benefits for non-crypto asset securities.  This is because the Commission has less data on the 
functioning of the market for crypto asset securities.
258
   
 
254
  See Proposing Release at 15618. 
255
  See id. at 15586. 
256
  See LeXpunK Letter at 14. 
257
  See id. at 15618. 
258
  See supra section V.B.1. 

95 
 
Certain benefits discussed in the Proposing Release apply only to certain asset classes: 
the Commission believes that if any current or future crypto asset security falls into one of those 
classes, then those benefits would likely apply to the participants in the market for that crypto 
asset security as well. 
a. Enhancement of Regulatory Oversight and Investor Protection 
As discussed fully in the Proposing Release, the Proposed Rules would enhance 
regulatory oversight and investor protection by extending the requirements related, among other 
things, to broker-dealer registration, transaction reporting, safeguarding subscribers’ confidential 
trading information, recordkeeping and reporting under Regulation ATS, providing certain 
information on Form ATS-R to the Commission, and filing public Form ATS-N , to New Rule 
3b-16(a) Systems trading in securities of the applicable asset classes.
259
  Of these benefits, some 
are associated with rules that apply to all securities, and the rest are associated with rules that 
apply only to securities of specific asset classes.  The Commission believes that benefits 
associated with rules that apply to all securities would accrue to market participants trading 
crypto asset securities in a manner similar to the description in the Proposing Release, and to a 
similar extent. The Commission additionally believes that benefits associated with rules applying 
only to specific asset classes would accrue to market participants trading crypto asset securities 
of the appropriate asset type, again in a similar manner and to a similar extent as that described 
in the Proposing Release.  
 
259
 See id. at 15618-19.  See also supra note 181 and accompanying text (explaining that the Commission 
continues to assume that, under the Proposed Rules, Newly Designated ATSs will choose to register as 
broker-dealers and comply with the conditions of Regulation ATS, rather than register as national securities 
exchanges, and therefore the costs analyzed here assume that such systems will not register as national 
securities exchanges). 

96 
 
b. Reduction of Trading Costs and Improvements to Execution 
Quality 
As discussed fully in the Proposing Release, the Proposed Rules would help enhance 
operational transparency, reduce trading costs, and improve execution quality for market 
participants by requiring public disclosure of Form ATS-N and applying the Fair Access Rule to 
certain ATSs.
  260
  The Commission believes that benefits associated with these rules would 
accrue to market participants trading crypto asset securities of the appropriate asset class, in the 
same manner and to the same extent discussed in the Proposing Release.  However, because 
some New Rule 3b-16(a) Systems involve systems which run with an on-chain component,
261
 
and therefore may operate using code that is, at least in part, publicly viewable, it is possible that 
the benefit of Form ATS-N disclosures may be reduced for such systems.  However, because this 
code is not disclosed in a standardized or human-readable form, the Commission believes that 
this reduction of impact may not be significant.   
c. Enhancement of Price Discovery and Liquidity 
As discussed fully in the Proposing Release, the Proposed Rules would help enhance the 
price discovery process and liquidity in securities markets by applying broker-dealer registration 
requirements of Regulation ATS, Regulation SCI, and the Capacity, Integrity, and Security Rule 
(i.e., Rule 301(b)(6) of Regulation ATS) to certain New Rule 3b-16(a) Systems.
262
  The 
Commission believes that benefits associated with these rules would accrue to market 
 
260
  See i d. at 15620-21. 
261
  For example, the system may be run in part by smart contracts deployed on a blockchain.  See supra section 
V.B.1.a for additional discussion of such systems. 
262
  See id. at 15621-22. 

97 
 
participants trading crypto asset securities of the appropriate asset class, in the same manner and 
to the same extent discussed in the Proposing Release.  
d. Electronic Filing Requirements 
As discussed fully in the Proposing Release, the Proposed Rules would benefit market 
participants by improving the usability, accessibility, and reliability of the new disclosures, by 
requiring a structured data language and a publicly accessible filing location for the applicable 
required disclosures.
263
  Of these benefits, some are associated with rules that apply to all 
securities, and the rest are associated with rules that apply only to securities of specific asset 
classes.  The Commission believes that benefits associated with rules that apply to all securities 
would accrue to market participants trading crypto asset securities in a manner similar to the 
description in the Proposing Release, and to a similar extent.  The Commission additionally 
believes that benefits associated with rules applying only to specific asset classes would accrue 
to market participants trading crypto asset securities of the appropriate asset class, again in the 
same manner and to the same extent discussed in the Proposing Release. 
However, because some New Rule 3b-16(a) Systems involve systems which run with an 
on-chain component,
264
 and therefore may operate using code that is, at least in part, publicly 
viewable, it is possible that the benefit of Form ATS-N disclosures may be reduced for such 
systems.  However, because this code is not disclosed in a standardized or human-readable form, 
the Commission believes that this reduction of impact may not be significant. 
 
263
  See id. at 15623. 
264
  For example, the system may be run in part by smart contracts deployed on a blockchain.  See supra section 
V.B.1.a for additional discussion of such systems. 

98 
 
2. Costs 
The Commission received comments on the Proposing Release stating that the 
Commission had not considered the costs of the Proposed Rules to New Rule 3b-16(a) Systems 
that trade crypto asset securities.
265
  In this section the Commission is supplementing the analysis 
of costs provided in the Proposing Release with additional analysis that details the extent and 
manner in which the costs discussed in the Proposing Release would apply to New Rule 3b-16(a) 
Systems that trade crypto asset securities.   
The Commission is relying on the analysis in the Proposing Release to form the basis for 
its discussion of the costs of Proposed Rules for systems trading crypto asset securities.
266
  This 
is because the Commission believes that the functioning of New Rule 3b-16(a) Systems that 
trade crypto asset securities are broadly similar to the functioning of other New Rule 3b-16(a) 
Systems discussed in the Proposing Release.  The Commission preliminarily believes that in 
some cases the costs of compliance may be higher for New Rule 3b-16(a) Systems in the market 
for crypto asset securities than for other New Rule 3b-16(a) Systems.  This is because in some 
cases the market for crypto asset securities utilizes different technology and methods of 
operation
267
 than is utilized in markets for non-crypto asset securities.  In addition, throughout 
the discussion in this Reopening Release, the Commission has a greater degree of uncertainty in 
its analysis of the costs that the Proposed Rules would impose on market participants than it did 
in its discussion of costs for non-crypto asset securities.  This is because the Commission has less 
data on the functioning of the market for crypto asset securities.
268
   
 
265
  See GDCA Letter II at 6; Crypto Council Letter at 4; McHenry/Huizenga Letter at 2; Coinbase Letter at 2; 
a16z Letter at 7. 
266
  See id. 
267
  Such different technology may include, for example, smart contracts. 
268
  See supra section V.B.1. 

99 
 
In addition, the Commission has received comments stating that entities that trade crypto 
asset securities may incur different compliance costs than entities that trade traditional securities.  
One commenter states that the analysis provided in the Proposing Release were based only on 
“traditional broker-dealer business,” adding that they were not aware of any broker-dealers that 
had successfully registered under the Commission’s framework for registering “digital-asset-
only broker-dealers.”
269
  There are also costs that are unique to New Rule 3b-16(a) Systems that 
trade crypto asset securities.  These costs are also the result of the use of different technology and 
methods of operation in some instances.  These costs are discussed in the sections below as 
applicable.  The Commission invites comment on the costs of the Proposed Rules for market 
participants in the market for crypto asset securities. 
a. Compliance Costs 
Table V.1 provides estimates for the aggregate compliance costs for New Rule 3b-16(a) 
Systems that trade crypto asset securities.  These aggregate costs reflect an estimate of 20 
additional affected New Rule 3b-16(a) Systems that were not included in the estimates provided 
in the Proposing Release, which is the upper end of the Commission’s estimate of the number of 
affected systems.  The Commission is uncertain as to how precise these estimates are because we 
lack sufficient data on crypto asset securities.
270
   
In both Table V.1 and the following subsections, the Commission is relying on the 
analysis in the Proposing Release to form the basis for its discussion of costs.  The Commission 
preliminarily believes that actual costs may be higher than these estimates and discussions 
express, due to the type of technology and operations utilized in trading crypto asset securities.  
 
269
  See ADAM Letter II at 14. 
270
  See supra section V.B.1. 

100 
 
Because it lacks certain data, the Commission is unable to provide an estimate as to how much 
higher costs may be, but preliminarily believes that these estimates and discussions provide a 
useful lower bound.   
Table V.1: Total Implementation Costs and Other Compliance Costs Affecting Entities 
that Trade Crypto Asset Securities Not Included in the Proposing Release 
Rule Compliance Action Aggregate Initial 
Costs 
Aggregate 
Ongoing Costs 
Reg ATS, 301(b)(1) 
 
Form BD filing 
Form ID filing 
Other compliance costs 
(non-PRA based) 
$18,000
a
 
$1,000
b
 
$6,320,000
c
 
$6,000
d
 
- 
$1,154,000
e
 
Reg ATS, 301(b)(2) Form ATS filing $128,000
f
 $30,000
g
 
Reg ATS, 301(b)(9) Form ATS-R filing - $130,000
h
 
Reg ATS, 301(b)(10) Written safeguards and 
procedures to protect 
subscribers’ confidential 
trading information 
$64,000
i
 $20,000
j
 
Reg ATS, 302 Recordkeeping - $68,000
k
 
Reg ATS, 303 Record preservation - $2,000
l
 
Total  $6,531,000 $1,410,000 
a
 This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(1)’s Form BD filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
b 
This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(1)’s Form ID filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
c
 This cost figure is obtained by summing the other initial implementation costs (non-PRA based) associated with 
Rule 301(b)(1) for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
d
 This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(1)’s Form BD filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
e
 This cost figure is obtained by summing the other ongoing implementation costs (non-PRA based) for 20 New 
Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing Release. See Proposing 
Release at Table VIII.8. 
f
 This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(2)’s Form ATS filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
g
 This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(2)’s Form ATS filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
h 
This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(9)’s Form ATS-R 
filing requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the 
Proposing Release. See Proposing Release at Table VIII.8. 

101 
 
i
 This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(10)’s requirement for 
written safeguards and procedures to protect subscribers’ confidential trading information, for 20 New Rule 3b-
16(a) Systems that trade crypto asset securities not included in the Proposing Release. See Proposing Release at 
Table VIII.8. 
j
 This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(10)’s requirement for 
written safeguards and procedures to protect subscribers’ confidential trading information, for 20 New Rule 3b-
16(a) Systems that trade crypto asset securities not included in the Proposing Release. See Proposing Release at 
Table VIII.8. 
k 
This cost figure is obtained by summing the ongoing implementation costs of Rule 302’s recordkeeping 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
l
 This cost figure is obtained by summing the ongoing implementation costs of Rule 303’s record preservation 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 
 
Commenters express concern that the Proposed Rules would include certain crypto asset 
security entities that the Commission had not considered, which would increase costs beyond 
what was estimated in the Proposing Release due to the increase in the number of affected 
entities.
271
  The Commission is now including a rough estimate that the Proposed Rules would 
include 15-20 New Rule 3b-16(a) Systems that trade crypto securities that were not included in 
the Proposing Release,
272
 along with the associated costs.   
One commenter expresses concern that “persons who may merely write open-source 
‘communications protocol’ code or publish information about the contents of communications 
systems which they do not control” would be included by the amended definition of exchange.
273
  
Another commenter expresses similar concerns that “DeFi developers” would be included by the 
amended definition of exchange.
274
  Another commenter expresses similar concerns that 
“persons who ‘make available’ AMMs or interfaces for utilizing AMMs may now be required by 
 
271
  See DeFi Education Fund Letter at 9, 17; Crypto Council Letter at 5; Blockchain Association Letter II at 7; 
LeXpunK Letter at 11; Chamber Letter at 5. 
272
  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 
and the Commission’s uncertainty regarding this estimate). 
273
  See Delphi Digital Letter at 6. 
274
  See DeFi Education Fund Letter at 3, 9. 

102 
 
the SEC to register those AMMs as ATSs or securities exchanges.”
275
  Another commenter 
expresses concern that the definition of exchange, as proposed to be amended, might “capture 
developers working with all manner of protocols, front end systems, and smart contracts.”
276
  
Two commenters include smart contract code developers and publishers, blockchain miners and 
validators, providers of liquidity to AMMs, website maintainers, and blockchain client software 
developers as examples of persons they believe might be inadvertently captured by the definition 
of exchange, as proposed to be amended.
277
  Another commenter lists social networking 
websites, peer-to-peer messaging applications, business communication platforms, financial 
information systems, blockchain technology nodes, and smart contracting platforms as examples 
of common retail communication platforms that might be required to register as an exchange 
under the Proposed Rules, adding that the proposal was likely to make “everyone involved in any 
securities-related communications an exchange or ATS.”
278
  Another commenter states that “any 
broker-dealer or non-broker-dealer that has systems related to trading or communicating trading 
interest in securities” might be included by the Proposed Rules.
279
  This commenter also lists 
validators, developers of smart contracts, and website operators as examples of entities that 
might be included by the Proposed Rules.
280
  Another commenter states that the Proposed Rules 
might cause “developers of code and smart contracts related to a Decentralized Protocol, or the 
 
275
  See Letter from Murray B. Wells, Attorney/Partner, Wells Associates, PLLC, dated Apr. 18, 2022 (“Wells 
Letter”) at 2. 
276
  See LeXpunK Letter at 13. 
277
  See Wells Letter at 2; LeXpunK Letter at 14. 
278
  See DARLA, GBC, and Global DCA Letter at 7. 
279
  See a16z Letter at 7. 
280
  See id. at 14. 

103 
 
maintainers of online websites that merely enable access to a Decentralized Protocol” to be 
captured by the definition of exchange, as proposed to be amended.
281
 
The Commission believes that the entities these commenters describe would only be an 
exchange if they constitute, maintain, or provide a market place or facility that meets the 
applicable criteria, and would only incur compliance costs in connection with their activities that 
constitute, maintain, or provide that market place or facility.   
The Commission acknowledges that there may be circumstances in which the miners or 
validators of a blockchain could incur costs under the Proposed Rules, and the Commission 
solicits comment on any such costs.
282
 
i. Implementation Costs 
New Rule 3b-16(a) Systems that would be newly subject to the requirements of 
Regulation ATS would incur implementation costs associated with, among other things, written 
safeguards and procedures to protect subscribers’ confidential trading information, 
recordkeeping, record preservation, and Form ATS-R.
 283
  The Commission estimates that there 
are 15-20 additional New Rule 3b-16(a) Systems not included in the Proposing Release that trade 
crypto asset securities.
284
   
Furthermore, New Rule 3b-16(a) Systems that trade NMS stocks would incur higher 
implementation costs due to the heightened requirements of filing Form ATS-N compared to 
New Rule 3b-16(a) Systems that would file Form ATS.
285
  To the extent that any crypto asset 
 
281
  See Blockchain Association Letter II at 6. 
282
  See supra notes 75-80 and accompanying text, section II.B (discussing groups of persons under the 
definition of exchange); infra section V.C.2.c.i. 
283
  See id. at 15627. 
284
  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 
and the Commission’s uncertainty regarding this estimate). 
285
  See id. 

104 
 
securities are NMS stocks, New Rule 3b-16(a) Systems that trade them would incur these higher 
costs.  The Commission estimates that no
286
 New Rule 3b-16(a) Systems currently trade crypto 
asset securities that are NMS stocks. 
Current ATSs and New Rule 3b-16(a) Systems that trade neither NMS stocks nor 
government securities would incur implementation costs associated with re-filing or filing the 
modernized Form ATS.  Furthermore, all New Rule 3b-16(a) Systems would incur 
implementation costs to file the revised electronic Form ATS-R.  Current NMS Stock ATSs 
would incur implementation costs associated with amending revised Form ATS-N.  The 
Commission estimates that 15-20
 287
 New Rule 3b-16(a) Systems currently trade crypto asset 
securities that are not NMS stocks that were not included in the Proposing Release, and no
288
 
New Rule 3b-16(a) Systems currently trade crypto asset securities that are NMS stocks.  To the 
extent that a current ATS or New Rule 3b-16(a) System trades in crypto asset securities 
generally or crypto asset NMS stock specifically, associated costs described in the Proposing 
Release would be a lower bound on costs incurred.
289
  
Significant NMS Stock ATSs and ATSs that trade corporate debt securities, municipal 
securities, or equity securities that are not NMS stocks are subject to the Fair Access Rule.  The 
Commission estimates that no
290
 New Rule 3b-16(a) Systems that trade crypto asset corporate 
 
286
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  
287
  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 
and the Commission’s uncertainty regarding this estimate). 
288
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  
289
  See id.; Table VIII.8. 
290
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  

105 
 
debt securities, municipal securities, NMS stocks, or equity securities that are not NMS stocks 
would be subject to the Fair Access Rule. 
Significant ATSs that trade corporate debt securities or municipal securities are subject to 
Rule 301(b)(6).  The Commission estimates that no
291
 New Rule 3b-16(a) Systems currently 
trade corporate debt or municipal securities that are crypto asset securities and would meet the 
threshold of Rule 301(b)(6).  To the extent that such an entity exists, the Commission believes 
that the implementation costs per entity presented in the Proposing Release would be a lower 
bound on costs incurred.
292
 
In the Proposing Release, the Commission discussed estimates of initial PRA burdens for 
new SCI entities and ongoing PRA burdens for all SCI entities.
293
  To the extent that any 
significant New Rule 3b-16(a) System trades in crypto asset securities that are (i) NMS stocks or 
(ii) equity securities that are not NMS stocks, and would therefore be subject to Regulation SCI, 
the Commission preliminarily believes that the PRA burdens discussed in the Proposing Release 
would be a lower bound on costs incurred.  The Commission estimates that no
294
 New Rule 3b-
16(a) Systems that trade crypto asset securities that are NMS stocks or equity securities that are 
not NMS stocks would meet the applicable thresholds to be subject to Regulation SCI.    
As discussed in the Proposing Release,
295
 the Commission believes that the fixed 
implementation costs associated with Rule 301(b)(9) and (10), Rule 302, and Rule 303 would 
 
291
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  
292
  See id. 
293
  See id. 
294
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  
295
  See Proposing Release at 15628. 

106 
 
represent a larger fraction of revenue for a small (measured in trading volume) ATS relative to 
that for a large ATS.  To the extent that New Rule 3b-16(a) Systems trade crypto asset securities, 
and are therefore subject to these costs, the Commission expects the fixed costs to fall 
disproportionately on such lower-volume New Rule 3b-16(a) Systems.  
As discussed in the Proposing Release,
296
 the Commission believes that the fixed 
implementation costs of developing internal processes to ensure correct and complete reporting 
on Form ATS-N would represent a larger fraction of revenue for a small (measured in trading 
volume) ATS relative to that for a large ATS.  To the extent that New Rule 3b-16(a) Systems 
trade crypto assets that are NMS stocks, and are therefore subject to these costs, the Commission 
expects the fixed costs to fall disproportionately on smaller such New Rule 3b-16(a) Systems.  
However, as in the Proposing Release, the Commission expects that smaller New Rule 3b-16(a) 
Systems that are not operated by multi-service broker-dealer operators and that generally do not 
engage in other brokerage or dealing activities in addition to their ATSs would likely incur lower 
implementation costs, because certain sections of Form ATS-N, as proposed to be amended, 
would not be applicable to these New Rule 3b-16(a) Systems.  
The Commission also believes that the implementation costs associated with Rule 304 
would vary across New Rule 3b-16(a) Systems that are NMS Stock ATSs depending on the 
complexity of the ATS and the services that it offers.  As discussed in the Proposing Release, the 
Commission believes that less complex ATSs and ATSs that offer fewer services would incur 
lower implementation costs due to requiring fewer burden hours to complete their Forms ATS-
 
296
  See id. 

107 
 
N.
297
  The Commission estimates that no
298
 New Rule 3b-16(a) Systems currently trade crypto 
assets that are NMS stocks.  To the extent that any such New Rule 3b-16(a) System exists, the 
Commission believes that this would also be the case for such systems. 
ii. Costs Associated with Broker-Dealer Requirements 
Under proposed Rule 301(b)(1), New Rule 3b-16(a) Systems that are non-broker-dealers 
(i.e., non-broker-dealer-operated New Rule 3b-16(a) Systems) and trade crypto assets securities 
would be subject to broker-dealer registration requirements.  Such an entity would incur costs 
associated with broker-dealer registration, which include costs related to registering with the 
Commission as broker-dealers, becoming members of an SRO, maintaining broker-dealer 
registration and SRO membership, and certain broker-dealer requirements with respect to 
maintaining net capital, reporting, and recordkeeping.  The Commission estimates that roughly 
15-20
 299
 such New Rule 3b-16(a) Systems that trade crypto asset securities not included in the 
Proposing Release exist.  The Commission believes that the costs
300
 discussed in the Proposing 
Release
301
 for such entities would be a lower bound on the costs incurred. 
Furthermore, under section 4(a)(4) of the Securities Act,
302
 a broker-dealer is required to 
conduct a reasonable inquiry into the facts surrounding the proposed sale of a security by its 
 
297
  See id. at 15628. 
298
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  
299
  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 
and the Commission’s uncertainty regarding this estimate). 
300
  As stated in the Proposing Release, the Commission lacks information that would allow it to provide 
estimates on certain restructuring related costs for a non-broker-dealer-operated Communication Protocol 
System that trades crypto asset securities.  Likewise, the Commission is unable to estimate the costs of 
broker-dealer requirements with respect to maintaining net capital, reporting, and recordkeeping, as it lacks 
information on how affected entities might change their current business structures upon registering as a 
broker-dealer. 
301
  See Proposing Release at 15628-29. 
302
  See 15 U.S.C. 77d(a)(4). 

108 
 
customer to determine whether the sale of the security would violate section 5, such as if there is 
no registration statement in effect with the Commission as to the offer and sale of the security, or 
there is no applicable exemption from the registration provisions available to the customer.  
Upon registration as a broker-dealer, an entity could face liability under section 5 of the 
Securities Act for facilitating sales of securities on behalf of its customers that would violate 
section 5.  To the extent a substantial portion of this entity’s business is in the sales of such 
securities, the Proposed Rules would result in a significant loss in revenue for the entity. 
One commenter states that the Commission’s estimates of compliance costs, provided in 
the Proposing Release, omitted the costs of joining FINRA, which is a requirement for becoming 
a registered broker-dealer.
303
  The commenter characterizes these costs as representing “the 
lion’s share” of the time and effort needed to become a broker-dealer.  The Commission did 
discuss these costs in the Proposing Release,
304
 and believes that the estimates provided there 
provide a useful characterization, notwithstanding the possibility that some costs may be higher 
for entities that trade crypto asset securities.
305
 
The Commission believes that a New Rule 3b-16(a) System not operated by a broker-
dealer would not incur compliance costs associated with registering as a broker-dealer and 
becoming a member of an SRO (e.g., FINRA) if it has a broker-dealer affiliate.
306
  The 
Commission believes that this would also apply to a New Rule 3b-16(a) System that trades 
crypto asset securities.  A broker-dealer affiliate that is adding ATS or New Rule 3b-16(a) 
System operations would incur additional ongoing costs associated with maintaining FINRA 
 
303
  See Crypto Council Letter at 6. 
304
  See Proposing Release at Table VIII.8 and note 1120. 
305
  See supra section V.C.2.a. 
306
  See Proposing Release at 15629. 

109 
 
membership if adding trading operations increases revenue, the number of registered persons or 
branch offices, trading volume, or expands the scope of brokerage activities.  Furthermore, a 
broker-dealer affiliate that is adding ATS or New Rule 3b-16(a) System operations could incur 
additional costs associated with maintaining adequate net capital level, reporting, and 
recordkeeping depending on the changes in business structure of the broker-dealer.  As in the 
Proposing Release,
307
 the Commission is unable to provide estimates on these additional costs; 
however, the Commission estimates that there are no
308
 New Rule 3b-16(a) Systems not operated 
by a broker-dealer that are affiliated with an existing broker-dealer.
 
 
iii. Costs Associated with the Ineffectiveness Declaration 
In addition to the implementation costs associated with filing and amending Form 
ATS-N, the Commission preliminarily believes that the proposed ability for the Commission to 
declare an initial Form ATS–N or Form ATS–N amendment ineffective could result in direct 
costs for New Rule 3b-16(a) Systems that are NMS Stock ATSs.
309
  However, the Commission 
estimates that no
310
 New Rule 3b-16(a) Systems currently trade crypto asset securities that are 
NMS stocks.  To the extent that such a New Rule 3b-16(a) System exists, it would incur these 
costs.  However, the Commission believes that there would not be a substantial burden imposed 
in connection with resubmitting an initial Form ATS-N or a Form ATS-N amendment or from an 
ineffective declaration in general.
311
  The costs of an ineffectiveness declaration would 
encourage New Rule 3b-16(a) Systems trading in these crypto asset securities to initially submit 
 
307
  See id. at 15629. 
308
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1. 
309
  See id. 
310
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  
311
  See Proposing Release at 15630 (citation omitted). 

110 
 
a more accurate and complete Form ATS-N and amendments thereto, which would reduce the 
likelihood that they are declared ineffective.
312
  Additionally, New Rule 3b-16(a) Systems that 
trade NMS stocks, including those that are crypto asset securities, would also be able to continue 
operations pending the Commission’s review of their initial Form ATS-N.  However, if after 
notice and opportunity for hearing, the Commission declares an initial Form ATS-N filed by 
such a New Rule 3b-16(a) System ineffective, the ATS would be required to cease operations 
until an initial Form ATS-N is effective. 
iv. Costs Associated with the Fair Access Rule 
The Commission preliminarily believes that complying with the Fair Access Rule could 
result in compliance costs (non-PRA based) for New Rule 3b-16(a) Systems that trade NMS 
stocks (including NMS Stock ATSs that would no longer be excluded from Fair Access 
compliance under Rule 301(b)(5)(iii) as proposed),
313
 equity securities that are not NMS stocks, 
corporate debt securities, or municipal securities.
314
  If a New Rule 3b-16(a) System must change 
fee structures, order interaction procedures, trading protocols, or access provisions and adapt 
their operating model due to the Fair Access Rule, it would incur costs related to changing 
business operations.
315
  To the extent that a New Rule 3b-16(a) System trades in crypto asset 
securities that fall into any of the above-mentioned categories, the Commission believes that it 
would incur costs related to these changes as described in the Proposing Release.  As in the 
Proposing Release, the Commission lacks data that would be used to quantify the costs related to 
 
312
  See id. 
313
  Today, based on public Form ATS-N filings, no NMS Stock ATS operates pursuant to this exclusion.   
314
  See id. 
315
  See id. 

111 
 
these changes.  The Commission estimates that no
316
 New Rule 3b-16(a) Systems currently trade 
crypto asset securities that are NMS stocks, equities that are not NMS Stocks, corporate debt, or 
municipal securities. 
As discussed in the Proposing Release,
317
 the Proposed Rules would aggregate volume 
across affiliated ATSs in calculating the fair access volume thresholds.  This would mean 
affiliate ATSs that otherwise do not meet the relevant volume thresholds may be subject to the 
Fair Access Rule.  As discussed above, if ATSs must adapt their operating models as a result of 
being subject to the Fair Access Rule, those ATSs would incur costs related to changing business 
operations.  The Commission estimates that no current affiliate ATS that trades NMS stocks, 
equity securities that are not NMS stocks, corporate debt securities, or municipal securities, that 
are crypto asset securities, and does not already currently meet the fair access volume thresholds 
would meet the thresholds if volume is aggregated across affiliated ATSs. 
v. Costs Associated with Rule 301(b)(6) 
As discussed in the Proposing Release,
318
 in addition to the implementation costs 
associated with reporting outages and recordkeeping under the proposed Rule 301(b)(6), the 
Commission preliminarily believes that significant New Rule 3b-16(a) Systems that trade 
corporate debt securities or municipal securities could incur compliance costs (non-PRA based) 
to ensure adequate capacity, integrity, and security with respect to those systems that support 
order entry, order routing, order execution, transaction reporting, and trade comparison.  To the 
extent that a New Rule 3b-16(a) System trades in crypto assets that are corporate debt securities 
 
316
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1. 
317
  See Proposing Release at 15630-31. 
318
  See id. at 15631. 

112 
 
or municipal securities, and does not currently meet the standards under the proposed rule, they 
would incur compliance costs as described in the Proposing Release.  The Commission lacks 
information that would enable it to reasonably estimate these costs, but believes that the 
compliance costs associated with Rule 301(b)(6) would be significantly less than those of 
Regulation SCI.
319
  Furthermore, the Commission estimates that none
320
 of the New Rule 3b-
16(a) Systems trading crypto asset securities would meet the applicable volume requirements and 
be subject to the requirements of Rule 301(b)(6). 
vi. Costs Associated with Regulation SCI 
New Rule 3b-16(a) Systems that meet certain volume thresholds and trade crypto asset 
securities that are (i) NMS stock or (ii) equity securities that are not NMS stocks, would incur 
compliance costs (non-PRA based costs) as SCI entities, including both initial and ongoing costs.  
The Commission believes that, to the extent that there exist New Rule 3b-16(a) Systems trading 
crypto asset securities that are equity securities, including NMS stocks, the costs described in the 
Proposing Release
321
 would be a lower bound on cost incurred.  The Commission estimates no
322
 
New Rule 3b-16(a) Systems that trade crypto asset securities would be subject to Regulation 
SCI.  
The Commission also believes that some New Rule 3b-16(a) Systems’ participants 
required to participate in the testing of business continuity and disaster recovery plans would 
 
319
  See id. at 15631 n.1138 and accompanying text. 
320
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1. 
321
  See id.; section VIII.C.2.a.vi. 
322
  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 
set of securities traded in crypto asset markets.  See supra section V.B.1.  See also Securities Exchange Act 
Release No. 97143 (Mar. 15, 2023), available at https://www.sec.gov/rules/proposed/2023/34-97143.pdf.  
The Commission encourages commenters to review that Regulation SCI proposal to determine whether it 
might affect their comments on this Reopening Release. 

113 
 
incur Regulation SCI-related connectivity costs.  The Commission believes that $10,000 apiece 
would be a lower bound on such costs.
323
  However, because the Commission estimates that no 
New Rule 3b-16(a) Systems that trade crypto asset securities would be subject to Regulation 
SCI, no such participants would incur these costs. 
The Commission believes that the costs to comply with Regulation SCI discussed above 
would also fall on third-party vendors employed by New Rule 3b-16(a) Systems to provide 
services used in their SCI systems.
 324
  To the extent that a vendor provides services to an ATS 
that trades crypto asset securities that are equity securities, including NMS stocks, it would incur 
these costs.  However, because the Commission estimates that no New Rule 3b-16(a) Systems 
that trade crypto asset securities would be subject to Regulation SCI, no such vendors would 
incur these costs. 
b. Indirect Costs 
The Commission believes that the Proposed Rules could result in indirect costs for 
market participants and certain New Rule 3b-16(a) Systems that trade crypto asset securities.
325
    
i. General Indirect Costs 
In the following discussion, the Commission is relying on the analysis in the Proposing 
Release to form the basis for our discussion of these costs.  The Commission preliminarily 
believes that actual costs may be higher than these discussions express, due to the technology 
and operations utilized in trading crypto asset securities.  The Commission is unable to provide a 
 
323
  See id. 
324
  See id. at 15632. 
325
  See infra section V.C.3 for discussions about the economic effects of the Proposed Rules specifically 
pertaining to competition, efficiency, and capital formation. 

114 
 
discussion as to how much higher costs may be, but preliminarily believes that the discussions 
below provide a useful lower bound.   
The public disclosure requirements of Form ATS-N under the proposal could generate 
indirect costs for some subscribers by causing New Rule 3b-16(a) Systems that trade NMS stock 
to stop sharing information that they might currently offer to only some subscribers.
326
  Form 
ATS-N would require NMS Stock ATSs to publicly disclose any platform-wide order execution 
metrics that they share with any subscriber.  To avoid publicly disclosing this information, an 
ATS might stop sharing the information with subscribers.  The trading costs of subscribers that 
currently use this information to help make trading decisions would likely increase if the 
information is no longer available to them.  To the extent that a subscriber trades using a New 
Rule 3b-16(a) System that trades crypto assets that are NMS stocks and receives such 
information, the subscriber would incur these indirect costs.  As discussed in the Proposing 
Release, the Commission anticipates that this risk might be low due to commercial incentives 
that may induce ATSs to continue disclosing this information.
327
 
The Commission believes that the public disclosure of Form ATS-N would generate 
indirect costs, in the form of transfers, for some subscribers of New Rule 3b-16(a) Systems that 
trade NMS stock who might currently have more information regarding some ATS features, such 
as order priority and matching procedures, than other subscribers.
  328
  The public disclosure of 
these features would reduce informed subscribers’ information advantage over other subscribers 
on such New Rule 3b-16(a) Systems and increase their trading costs.  In this regard, the 
Commission recognizes that this effect would be a transfer to those subscribers who would 
 
326
  See id. 
327
  See id. 
328
  See id. 

115 
 
receive the proposed information, from those subscribers who currently exclusively receive such 
information.  To the extent that a New Rule 3b-16(a) System trades in crypto asset securities that 
are NMS stocks, such transfers might occur among their subscribers. 
Some New Rule 3b-16(a) Systems that trade NMS stock would experience indirect costs 
from the public disclosure of Form ATS-N to the extent that this form would reveal information 
to competitors.
329
  If such a New Rule 3b-16(a) System in part relies on certain operational 
characteristics (e.g., order types, trading functionalities) to attract customer order flow and 
generate trading revenues, it is possible that the public disclosure of these characteristics in Form 
ATS-N would make it easier for other trading venues to adopt the operational characteristics, 
which would lower trading volume and reduce revenue of the disclosing New Rule 3b-16(a) 
System.  Such costs to the disclosing entity would constitute transfers to competing ATSs rather 
than a net cost to the market.  To the extent that a New Rule 3b-16(a) System trades any crypto 
assets that are NMS stocks, it might experience these transfers described in the Proposing 
Release.  Furthermore, because some New Rule 3b-16(a) Systems involve systems which run 
with an on-chain component,
330
 and therefore may operate using code that is, at least in part, 
publicly viewable, it is possible that the adverse impact of these disclosures may be reduced, for 
such systems.  However, because this code is not disclosed in a standardized or human-readable 
form, the Commission believes that this reduction of impact may not be significant. 
The Commission believes that the risk of these transfers is low because it is not likely the 
responsive information to Form ATS-N, as proposed to be amended, would include detailed 
enough information regarding operational facets such that the public disclosure of the 
 
329
  See id. 
330
  For example, the system may be run in part by smart contracts deployed on a blockchain.  See supra section 
V.B.1.a for additional discussion of such systems. 

116 
 
information would allow another ATS to replicate the functionality to the extent it would 
adversely affect the competitive position of the disclosing ATS in the market.
331
 
The Commission believes that New Rule 3b-16(a) Systems that trade NMS stocks 
(including NMS Stock ATSs that would no longer be excluded from Fair Access compliance 
under Rule 301(b)(5)(iii) as proposed), equity securities that are not NMS stocks, corporate debt 
securities, or municipal securities could indirectly experience costs in the form of lost revenue if 
they meet or exceed the Fair Access Rule thresholds and need to alter their business model to 
comply with the requirements of the Fair Access Rule.
332
  To the extent that any crypto asset 
securities fall into these categories, the Commission believes that a New Rule 3b-16(a) System 
that trades in them, including NMS Stock ATSs that trade crypto asset securities that are NMS 
stocks and would no longer be excluded from Fair Access compliance under Rule 301(b)(5)(iii) 
as proposed, might incur these costs discussed in the Proposing Release.  
As discussed in the Proposing Release,
333
 the Commission believes that market 
participants could incur indirect costs related to New Rule 3b-16(a) Systems that trade NMS 
stocks (including NMS Stock ATSs that would no longer be excluded from Fair Access 
compliance under Rule 301(b)(5)(iii) as proposed), equity securities that are not NMS stocks, 
corporate debt securities, or municipal securities, being subject to the Fair Access Rule.  To the 
extent that a New Rule 3b-16(a) System (including NMS Stock ATSs that would no longer be 
excluded from Fair Access compliance under Rule 301(b)(5)(iii) as proposed) trades in crypto 
assets that fall into any of the above categories of security, market participants that trade on such 
 
331
  See id. 
332
  See id. 
333
  See Proposing Release at 15633. 

117 
 
platforms might experience transfer costs through the same chain of events described in the 
Proposing Release. 
Compared to larger and more established New Rule 3b-16(a) Systems trading in crypto 
assets, it is possible that younger New Rule 3b-16(a) Systems rely more on providing catered 
services, including more advantageous access, to specific clients or a clientele, in order to grow 
their businesses.
334
  If being subject to the Fair Access Rule prohibits these New Rule 3b-16(a) 
Systems from doing this, these New Rule 3b-16(a) Systems could restrict trading on their 
systems when they are close to meeting the volume thresholds under the Fair Access Rule.
335
  As 
in the Proposing Release, to the extent that the market for trading services is competitive, the 
Commission believes this may not result in a significant increase in trading costs for market 
participants, because the order flow that was being sent to those New Rule 3b-16(a) Systems 
would likely be absorbed and redistributed amongst other New Rule 3b-16(a) Systems or other 
venues.
336
  However, if a New Rule 3b-16(a) System that is the sole provider of a niche service 
limits the trading in certain securities to avoid being subject to the Fair Access Rule, it could be 
more difficult for some market participants to find an alternative trading venue for that niche 
service, which would result in a larger increase in trading costs.
337
  To the extent that a New Rule 
3b-16(a) System trades in crypto assets that are securities, the Commission expects these costs to 
apply to such a New Rule 3b-16(a) System as described in the Proposing Release. 
 
334
  Id. 
335
  Id. 
336
  Id. 
337
  Id. 

118 
 
As discussed in the Proposing Release,
338
 the Proposed Rules apply certain aggregate 
volume thresholds to the Fair Access Rule in the markets for corporate debt and municipal 
securities and equity securities, which could also cause market participants to incur similar 
indirect costs.  If the aggregate volume of ATSs operated by a common broker-dealer or operated 
by affiliated broker-dealers approaches the Fair Access volume thresholds, then the operators 
could restrict trading in one or more securities on their systems in order to avoid being subject to 
the requirements of the Fair Access Rule.
339
  Market participants could also incur indirect costs 
from the Proposed Rules to apply certain aggregate volume thresholds to the Fair Access Rule if 
it causes a broker-dealer or affiliated broker-dealers that operate multiple ATSs to shut down one 
or more of their smaller ATSs in order to avoid triggering the Fair Access threshold.
340
  This 
could cause market participants that subscribed to one of the shutdown platforms to incur search 
costs to find another venue to trade on.
341
  To the extent that there exist crypto assets that fall 
into one of the above asset classes, and are traded on ATSs, the Commission believes that these 
indirect costs could apply as discussed in the Proposing Release. 
As discussed in the Proposing Release,
342
 the Commission believes that market 
participants could incur indirect costs related to applying Regulation SCI to New Rule 3b-16(a) 
Systems in the market for crypto asset equity securities and applying Rule 301(b)(6) to New 
Rule 3b-16(a) Systems in the market for crypto asset corporate debt securities or municipal 
securities.  If such a New Rule 3b-16(a) System is close to satisfying the volume thresholds of 
 
338
  Id. 
339
  Id. 
340
  Id. 
341
  Id. 
342
  Id. 

119 
 
Regulation SCI or Rule 301(b)(6), it could limit the trading in certain securities on its systems to 
stay below the volume thresholds in order to avoid being subject to Regulation SCI or Rule 
301(b)(6).
343
  As discussed above, the Commission believes that in general this would not 
necessarily lead to higher trading costs, but to the extent this occurs for a New Rule 3b-16(a) 
System that is the sole provider of a niche service, some market participants would incur higher 
trading costs.  
Additionally, in order to stay below the volume thresholds under Regulation SCI or Rule 
301(b)(6), a New Rule 3b-16(a) System could break itself up into smaller New Rule 3b-16(a) 
Systems.
344
  If this results in its subscribers changing their administrative and operational 
procedures (e.g., means of access, connectivity, order entry), the subscribers would incur costs 
associated with making those administrative and operational changes to utilize the ATS(s), or 
otherwise incur search costs to find another venue to trade.
345
  To the extent that there exist 
crypto assets that fall into one of the applicable asset classes, and are traded on New Rule 3b-
16(a) Systems, the Commission believes that these costs could apply as discussed in the 
Proposing Release.
346
 
ii. Costs Associated with the Proposed Functional-Test-B ased 
Exchange Definition 
The proposed functional-test-based exchange definition could result in increased legal 
costs for market participants.  Specifically, the Proposed Rules could cause market participants 
to engage in a more thorough and expansive compliance review of any changes in operations out 
 
343
  Id. 
344
  Id. 
345
  Id. 
346
  See id. 

120 
 
of concern that a large range of activities might meet the proposed definition of exchange.  This 
approach could also increase uncertainty about the application of the Proposed Rules, which in 
turn may further increase legal costs. 
In addition, market participants would decrease and slow down the development of new 
products and technologies.  Such development may depend on the ability to rapidly develop and 
deploy new systems.  The need for more extensive compliance review, uncertainty about the 
application of the Proposed Rules,
347
 and concerns that new systems may inadvertently meet the 
definition of exchange
348
 could make such a process more difficult.  Market participants may 
come to regard some areas of new product development as inherently risky, because of the 
potential for regulatory costs, and decide to stop engaging in them. 
One commenter states that the uncertainty caused by the expanded definition of exchange 
in the Proposed Rules “...is concerning and likely to stifle innovation.”
349
  Another commenter 
states that the uncertainty of exposure to enforcement actions might stifle innovation.
350
  While 
the Commission does not believe that innovation will be impossible under the Proposed Rules, 
we acknowledge that there could be less innovation as a result of the uncertainty and compliance 
costs associated with the broad formulation of the Proposed Rules.  
 
347
  One commenter agrees with assessment.  See DARLA, GBC, and Global DCA Letter at 6 (stating that the 
broad language in the Proposed Rules “...would likely cause chilling effects and deter further innovation 
and activity among early-stage technology companies due to uncertainty over which technology services 
would satisfy the new and expanded definition of exchange.”)  
348
  One commenter expresses such concerns, stating “[w]e have significant concern that a lack of a specific 
definition for such a broadly explained term will cause ongoing confusion and, as a result, increase the 
potential for a market participant to inadvertently run afoul of the obligations set forth in the Proposals.”  
See Chamber Letter at 4. 
349
  See McHenry/Huizenga Letter at 2. 
350
  See L exPunK Letter at 2. 

121 
 
iii. Costs Associated with Discontinuation of Non-Security-for-
Security Pairs Trading 
Many crypto asset securities are not traded in exchange for fiat currencies but are instead 
traded for other crypto assets.  To the extent that a New Rule 3b-16(a) System enables the 
trading of crypto asset securities for crypto assets that are not securities, that entity may also 
incur the cost of having to stop enabling such trades, and the resulting loss of revenue.  Because 
pairs trading is common in crypto asset markets, this cost may be significant for some New Rule 
3b-16(a) Systems.  These costs may be mitigated if affected New Rule 3b-16(a) Systems are able 
to arrange for a fiat currency market for the relevant crypto asset security, and a separate fiat 
currency market in a separate entity for the non-security crypto asset
, so that it can arrange for a 
pair of trades to take place that closely replicates the desired trade.  For systems that wish to 
complete the transaction entirely on-chain, such arrangements are likely to be impossible, and 
this mitigation would therefore not apply to them. 
Furthermore, because existing national securities exchanges and ATSs currently do not 
facilitate trading between crypto asset securities and non-security crypto assets, the loss of New 
Rule 3b-16(a) Systems as platforms for engaging in such trades may be a significant cost for 
market participants in crypto asset markets.  The inability to complete such trades using New 
Rule 3b-16(a) Systems could require market participants to switch to other means of trading, 
such as bilateral voice trading.  To the extent such trading methods are not the market 
participant’s preferred method, this would increase trading costs.  Market participants may be 
able to mitigate these costs if New Rule 3b-16(a) Systems are able to provide cash markets for 
the relevant crypto assets, and arrange for a pair of trades that would closely replicate the desired 
exchange.   

122 
 
c. Costs for Platforms Using Certain Technologies 
The Commission preliminarily believes that there may be costs associated with 
complying with the Proposed Rules for New Rule 3b-16(a) Systems that would perform 
exchange activities using certain technologies that are used in the market for crypto asset trading 
services.
351
  The Commission is unable to provide an exact estimate or quantitative range for 
these compliance costs, because the Commission lacks sufficient detail about the variety of 
platforms whose systems use these technologies, or their options to comply.  In the following 
subsections the Commission provides a range of compliance costs related to responsibilities for 
compliance, as well as a discussion of the factors associated with certain technologies that might 
increase the compliance costs of certain specific requirements.  It is possible that operating a 
system that uses these technologies to perform exchange activities under the Proposed Rules in a 
manner that complies with applicable regulations could significantly reduce the extent to which 
the system is “decentralized” or otherwise operates in a manner consistent with the principles 
that the crypto asset industry commonly refer to as “DeFi.” 
i. Initial Costs of Compliance 
The Commission preliminarily believes that some New Rule 3b-16(a) Systems that trade 
crypto asset securities may incur greater initial costs to come into compliance, due to these 
systems’ use of certain technologies that, for example, allow them to automate portions of their 
operations using smart contracts deployed on an underlying blockchain.
352
  The Commission 
 
351
  One commenter on the Proposing Release states that due to the “decentralized and autonomous nature of 
Decentralized Protocols, and the lack of an intermediary who could serve as a broker-dealer affiliate,” the 
Proposed Rules would impose significant burdens that had not been considered.  See Blockchain 
Association Letter II at 8.  The Commission believes that the general costs described throughout section 
V.C.2 as applicable, and the specific costs discussed in this subsection, provide the necessary consideration 
of such burdens. 
352
  These technologies include, but are not limited to, system architectures that permit RFQ systems to be run 
partly or wholly on-chain using smart contracts. 

123 
 
believes that there are a range of such technologies, or a range of systems’ use of such 
technologies, that would entail differing initial costs, and has prepared a description of two 
scenarios that we preliminarily believe covers the range of costs likely to occur.
353
  These 
scenarios consist of an example of a system that would likely have the lowest possible costs of 
compliance for a system using such technologies, and an example of a hypothetical system in 
which the cost of compliance is likely to be the highest possible.  The Commission preliminarily 
believes that the initial compliance costs of the typical New Rule 3b-16(a) System that performs 
exchange activities using such technologies would fall in between the costs associated with these 
two examples.  The Commission requests comment on the issue of compliance costs of New 
Rule 3b-16(a) Systems that operate in this manner. 
At the low end of the range, the Commission preliminarily believes a New Rule 3b-16(a) 
System that performs exchange activities using these technologies may incur similar costs to 
those of a New Rule 3b-16(a) System that does not use such technologies.
354
  This lower bound 
is based on consideration of a hypothetical system using such technologies in a way that the 
Commission believes would tend to present the least difficulty in complying with the Proposed 
Rules.  This low-cost hypothetical case consists of a New Rule 3b-16(a) System that would 
automate a portion of its operations using a set of smart contracts
355
 that it developed and 
deployed itself; would have the sole right and means
356
 to make alterations to the deployed smart 
contracts; would receive any fees charged by the smart contracts, as well as any fees collected in 
 
353
  Providing an estimate corresponding to every hypothetically possible design of systems using such 
technologies would be impractical.   
354
  See supra section V.C.2.a and V.C.2.b covering these costs. 
355
  See supra section V.B.1.a discussing smart contracts for DeFi platforms and their management. 
356
  Possession of the sole means to make alterations to a smart contract could consist of a design in which 
changes may be made to the smart contract’s code by using a unique private key, and where that key is in 
the sole possession of the firm. 

124 
 
connection to the service through other means; and would maintain all off-chain operations that 
might be necessary to run the service. 
In this case, the Commission believes the responsibility to bring such a New Rule 3b-
16(a) System into compliance may fall to this firm and that under such circumstances, the cost of 
compliance would be similar to that of a New Rule 3b-16(a) System that does not automate any 
portion of its operations using a smart contract, as detailed in sections V.C.2.a and V.C.2.b 
above.  In particular, any alterations that may need to be made to the smart contracts connected 
with the system in order to bring it into compliance with the relevant regulations could be 
implemented in a manner similar to alterations made to software generally, due to the firm’s 
control over those smart contracts. 
The Commission preliminarily believes that a New Rule 3b-16(a) System that performs 
its exchange activities in part using smart contracts, but that is not set up in the manner described 
above, may have significantly higher costs of compliance than the lower bound.  The 
Commission is unable to provide a quantitative estimate of an upper bound because the 
Commission lacks information on the costs of the activities which may be necessary for more 
complex systems using such technology to come into compliance.
357
  The Commission 
preliminarily believes that a reasonable case, in which the highest possible compliance costs 
would result, would be a New Rule 3b-16(a) System that performs exchange activities in part 
using smart contracts, but in which control over changes to the smart contracts is given to a 
 
357
  In particular, the Commission does not have examples of systems using such technology that are registered 
with the Commission as an exchange or as an ATS.  See supra section V.B.2. 

125 
 
token-based voting mechanism, which may use governance tokens as discussed above,
358
 and 
where the tokens are dispersed among a large number
359
 of investors.   
In this scenario, the Commission believes that the holders of the governance tokens, or 
other tokens that carry voting rights, may bear the responsibility of ensuring the compliance of 
the system.  In such a scenario, the Commission believes that the holders of the relevant tokens 
could choose to form an organization or association, or to designate a member of a group of 
persons, which would be responsible for undertaking the activities necessary to bring the New 
Rule 3b-16(a) System into compliance with Regulation ATS.   
The costs to produce such an organization or association, or to designate a member of a 
group of persons may involve the effort required on the part of the relevant token holders to 
coordinate and reach agreement on the design of such an organization,
360
 legal expenses 
associated with the design and legal registration of the entity, or costs involved with designating 
a member of the group of persons responsible for ensuring compliance.  If the relevant tokens of 
a smart contract entitle their holders to a share of transaction fees paid to the smart contract, or 
some other form of return, these expenses could be paid using such returns; otherwise, the 
holders of the tokens themselves may have to supply the necessary funds.   
 
358
  See supra note 15. 
359
  “Large” could mean millions of retail investors, each with some share in the vote determined by the 
number of tokens they hold.  One prominent DeFi platform has approximately 755 million outstanding 
tokens, each with a share in governance votes. See Curve DAO, CoinGecko, available at 
https://www.coingecko.com/en/coins/curve-dao-token.  The Commission understands that, while protocols 
may have a large number of outstanding governance tokens, control of those tokens (or their voting rights) 
may be held by a limited number of entities. 
360
  The Commission believes that this may be a difficult undertaking, given the potentially large number of 
individuals and entities that would have to reach agreement.  Such entities may also lack the sophistication 
or resources required to easily navigate the process of forming such an organization or association and 
coming into compliance. 

126 
 
Also, because changes to the smart contracts would require a vote, the Commission 
preliminarily believes that the process of implementing any changes to the smart contracts that 
are required for compliance may be more costly than in the case where a single firm holds all 
control.  
It is possible that, when it becomes necessary for the holders of relevant tokens to form 
an organization or association, or to designate a member of a group of persons, some of those 
holders might choose to sell their tokens to avoid taking on regulatory burdens, which the 
Commission expects would ultimately result in there being fewer holders of the governance 
tokens. The Commission does not have the data it would need to estimate the extent to which this 
would happen, but to the extent that this process significantly reduces the number of holders of a 
smart contract’s governance tokens, the Commission expects that the costs of compliance for 
such a smart contract would fall between the two extremes already discussed.  
The Commission believes that there is a third configuration of smart contract 
management which may have costs either inside the range described above or outside this range.  
This is the configuration entailed by a New Rule 3b-16(a) System that would automate all of its 
operations via smart contracts that are immutable.  This immutability makes it impossible to alter 
the code of a smart contract using the typical processes of a public blockchain once it has been 
deployed, even by the entity responsible for its deployment and responsible for bringing such a 
system into compliance.  However, the Commission understands that it is possible for the miners 
or validators of a smart contract’s underlying blockchain to effect a change to a blockchain 

127 
 
through, for example, a fork that would impact interactions with the immutable smart contract, 
and that this capacity has already been used on rare occasions.
361
   
In this case, the costs would depend on the specific factual circumstances, including, 
among other considerations, the activities performed by persons that, for example, could fund or 
code changes to the blockchain, or validate or mine the transactions, or some combination 
thereof.
362
  It is possible that in this case costs may exceed the upper bound described above.
363
  
The Commission is uncertain as to the exact size of the costs that may be involved and requests 
comment on the issue.  
In addition, the Commission preliminarily believes that in a circumstance in which only 
validators or miners are able to stop effectuating transactions that trigger the automated 
operations of a smart contract, the validators or miners may discontinue processing transactions 
resulting from trading interest matched by the New Rule 3b-16(a) System.  In the event that 
validators or miners choose to discontinue processing such transactions, there may be costs to 
market participants associated with arranging to direct their trading interest to other venues.  If 
instead miners or validators incur costs by choosing to continue processing transactions of such a 
system, the Commission preliminarily believes that they may pass on some of these costs to 
users, as described above.
364
  It may also be the case that even if the miners or validators as a 
whole opt to effect a change to a blockchain or smart contracts, some miners or validators could 
choose to cease processing transactions of a blockchain. 
 
361
  See, e.g., https://spectrum.ieee.org/ethereum-blockchain-forks-to-return-stolen-funds, discussing how 
miners of a major public blockchain “forked” the chain to change an undesired result. 
362
  See supra notes 75-80 and accompanying text. 
363
  The Commission preliminarily believes that costs may be higher for reasons that might include technical 
difficulties that would not be encountered when bringing a Rule 3b-16(a) System based on a mutable smart 
contract into compliance. 
364
  See supra section V.C.2.a. 

128 
 
The Commission is not aware of a specific example of a New Rule 3b-16(a) System 
which automates all of its operations by means of immutable smart contracts.  However, the 
Commission has limited information on such systems and requests comment on this issue. 
One commenter describes “practical considerations” that it believes might mean that it 
was “not possible” for certain systems, which they term “Decentralized Exchanges” or “DEXes,” 
to comply with the Proposed Rules.
365
  These considerations include the fact that, once launched, 
smart contracts “are not controlled or intermediated by any person or group of persons,”
366
 and 
in particular, that responsibility for the system could not be attributed to the persons who created 
or deployed the smart contract because “once deployed, the DEX typically cannot be 
significantly altered or controlled by any such persons.”
367
   
The Commission preliminarily believes that our analysis adequately addresses these 
concerns.  Specifically, smart contracts can be controlled after deployment, however, in some 
instances, the functions of miners or validators may be needed to exert such control.  The 
discussion above provides a range of possible scenarios that have different possible costs and 
may result in different entities being affected, but the Commission believes that these costs are 
not impossible to pay.
368
   
Another commenter states that the compliance burdens imposed by the Proposed Rules 
“may simply be insurmountable due to the incompatibility of the decentralized nature of 
Decentralized Protocols with the requirement for a centralized, regulated intermediary imposed 
 
365
  See Coinbase Letter at 7. 
366
  See id. at 6. 
367
  Id. 
368
  As discussed above, these costs may be high enough that the group of persons responsible for the exchange 
choose to exit the market for crypto asset security trading services rather than continue operations.  See 
infra section V.C.3.a (discussing entry and exit as result of compliance costs). 

129 
 
by the ‘exchange’ definition.”
369
  This commenter also states that “it is unclear how [persons 
related to Decentralized Protocols] could achieve compliance with the relevant regulations.” 
The Commission acknowledges that, in the case of New Rule 3b-16(a) Systems that use 
the technologies discussed above to automate portions of their operations using smart contracts, 
validators and miners may choose to take actions to form a single entity, like an organization, 
and register with the Commission.  The Commission preliminarily believes that our analysis, 
given above, adequately addresses these concerns of control over the smart contract, which 
entities may incur the costs of compliance, and how large those costs may be.  However, the 
Commission acknowledges that these costs may cause some or all of the entities that make 
available such a system to cease the activities that make them responsible for the system’s 
compliance, potentially resulting in the system’s exit from the market. 
Another commenter raises concerns about potential impossibility of limiting certain 
systems’ activity to non-securities trading in the event that the creators of the system wish to 
avoid having to comply with federal securities laws, stating that it would be impossible for any 
“organization, group or association” to ensure no securities are made available for trading on 
such a system.
370
 
The Commission acknowledges that there may be existing New Rule 3b-16(a) Systems, 
with smart contracts designed to permit anyone with access to the blockchain to begin trading in 
any crypto asset supported by the blockchain, including those that are securities.  In such 
circumstances, the smart contract(s) may have to be altered in order to ensure that the system 
does not trade securities.  As discussed above, this could be achieved either by any organization, 
 
369
  See Blockchain Association Letter II at 8. 
370
  See Delphi Digital Letter at 7. 

130 
 
association, or group of persons that can make changes to the smart contract, or by the miners or 
validators of the relevant blockchain in the event that the smart contracts are immutable.   
Because of the easily accessible nature of many public blockchains, the Commission 
preliminarily believes that construction, deployment, and maintenance of a New Rule 3b-16(a) 
System that uses the technologies described above could be achieved by groups of persons who 
are unsophisticated participants in financial markets and may not appreciate the significance of 
maintaining a system that meets the definition of exchange as proposed to be amended and 
therefore of having obligations to comply with the relevant securities laws.  The Commission 
believes that the costs of compliance for such persons would be higher because of their lack of 
experience with federal securities laws.  Some such persons may choose to discontinue their 
systems rather than bear the costs of compliance. 
ii. Unique Costs for Systems using Certain Technologies  
The Commission preliminarily believes that certain New Rule 3b-16(a) Systems may 
have difficulties in complying with some rules.  The New Rule 3b-16(a) Systems which may 
have such difficulties are systems which use technologies that, for example, allow them to 
automate portions of their operations using smart contracts deployed on an underlying 
blockchain.  The rules for which there may be such difficulties include Regulation SCI, as well 
as the Fair Access Rule of Regulation ATS.  Systems that use these technologies may have 
difficulties in complying with these rules when compared with platforms that do not use such 
technologies.  For example, there may be difficulties in ensuring the compliance of SCI systems 
that run using DLT, such as smart contracts.  

131 
 
One commenter states that the realities of decentralization make compliance 
“impracticable” for certain systems, which the commenter terms “DeFi.”
371
  This commenter 
questioned what entity or group of entities involved in the operation of such a system would be 
responsible for complying with Regulation ATS,
372
 and additionally stated that even if this were 
clear, it was not obvious that this party would have the necessary information to fulfill that 
responsibility.   
The Commission discusses above that a DLT-based market place or facilities for bringing 
together buyers and sellers of securities is typically maintained or provided by a single 
organization but a combination of the actors can constitute, maintain, or provide, together, a 
market place for securities as a group of persons, which would be considered an exchange under 
section 3(a)(1) of the Exchange Act and Rule 3b-16 thereunder.
373
  The Commission 
acknowledges that there may be some existing systems of this type designed in such a way that 
the information necessary to comply with the disclosure requirements of Regulation ATS is not 
possessed by any singular entity.  In such a case, the Commission believes that the entities 
responsible for compliance may find it necessary to form an organization or designate a member 
of the group of persons to be responsible for compliance, as discussed above,
374
 and that such an 
organization or member of the group of persons would be capable of collecting the information 
necessary to comply.  In cases of a system using DLT, where some or all of this information is 
not already possessed by entities responsible for compliance, the manner in which the system 
functions may have to be altered to make compliance with registration requirements possible.  
 
371
  See a16z Letter at 14. 
372
  See id. at 3, 14. 
373
  See supra section II.B. 
374
  See supra section V.C.2.c.i. 

132 
 
As discussed above,
375
 this could be achieved by the organization or group of persons  
responsible.   
The Commission believes that access to New Rule 3b-16(a) Systems that make extensive 
use of DLT in their operations may happen through processes not common to systems that do not 
make extensive use of such technology.  In this case, such a New Rule 3b-16(a) System may 
have significant challenges in ensuring compliance with the Fair Access Rule of Regulation 
ATS.   
The challenges that may be faced by New Rule 3b-16(a) Systems that make extensive use 
of DLT in complying with Regulation ATS and Regulation SCI may impose significant costs.  It 
is possible that these costs may cause some such systems to exit the market, or to restructure 
their technology to facilitate a lower compliance cost.  In addition, compliance with the 
applicable regulations may result in significant alteration to the manner in which such systems 
operate.   
3. Efficiency, Competition, and Capital Formation 
a. Competition 
The Commission believes that the Proposed Rules could affect competition.  The 
Proposed Rules could promote competition by requiring ATSs and New Rule 3b-16(a) Systems 
to operate on a more equal basis in the market for crypto asset securities trading services.  The 
Fair Access Rule of Regulation ATS could promote competition in the market for trading 
services in the applicable securities markets.
376
  Furthermore, the public disclosure of Form 
 
375
  See supra section V.C.2.c.i. 
376
  See infra section V.C.3.a.i.e for discussion about the impact of the Fair Access Rules on competition. 

133 
 
ATS-N could promote competition and incentivize innovation in the market for trading services 
in the applicable securities markets.
377
 
Also, the costs of the Proposed Rules associated with, among other things, altering 
business practices to come into compliance, becoming a broker-dealer, filing Form ATS or Form 
ATS-N as applicable, and complying with the Fair Access Rule of Regulation ATS and 
Regulation SCI as applicable could result in higher barriers to entry and reduction in the rate of 
adoption of new technologies in the market for crypto asset securities trading services.  
Furthermore, the requirements of broker-dealer registration, Form ATS, and Form ATS-N could 
reduce operational flexibility.  The Commission acknowledges that this reduction in operational 
flexibility could, under certain circumstances, make it more difficult to innovate.  That said, in 
addition to the other benefits discussed above,
378
 the Commission believes that the proposed 
amendments would foster competition by requiring current ATSs and New Rule 3b-16(a) 
Systems to operate on a more equal basis in the market for trading services.  This, in turn, would 
help promote innovation.  To the extent that the Proposed Rules result in significant costs for 
New Rule 3b-16(a) Systems, these systems could exit the market for crypto asset securities 
trading services.  In particular, to the extent that New Rule 3b-16(a) Systems using certain 
technologies incur higher costs,
379
 there may be a higher chance of these New Rule 3b-16(a) 
Systems exiting the market.  As in the Proposing Release, the Commission lacks certain 
information necessary to quantify the extent to which entities that otherwise would seek to 
 
377
  See infra section V.C.3.a.i.f for discussion about the impact of public disclosure via Form ATS-N under 
Rule 304 of Regulation ATS on competition. 
378
  See supra section V.C.1 
379
  See supra section V.C.2.c. 

134 
 
operate as a trading venue in the market for crypto asset securities would be dissuaded from 
doing so. 
However, the Commission believes that these adverse effects on competition could be 
mitigated to some extent.  To the extent that the market for crypto asset securities trading 
services is competitive and that a limited number of New Rule 3b-16(a) Systems exit the market, 
the adverse effect on overall competition among trading platforms would be mitigated to some 
extent because the order flow that was being sent to exiting New Rule 3b-16(a) Systems would 
likely be absorbed and redistributed amongst other New Rule 3b-16(a) Systems or systems that 
meet the existing criteria of Rule 3b-16(a).
380
   
One commenter states that regulating “DeFi protocols or CPSs (or related parties)” as 
exchanges might “operate as a ban” due to the inability of those entities to comply with 
registration requirements.
381
  Another commenter also states that the proposed amendments 
might amount to a “back-door prohibition of a vast swathe of actual and potential peer-to-peer 
finance protocols” due to the inability for some entities to feasibly comply.
382
  Another 
commenter states that “subjecting DeFi systems to a regulatory regime that they cannot comply 
with” could force them into extinction.
383
 
The Commission acknowledges that the costs of compliance may be greater for market 
participants that trade crypto asset securities than for those that trade non-crypto asset securities.  
However, the Commission believes that the additional costs of compliance experienced by 
 
380
  To the extent that the market for trading services is competitive, the adverse effect on competition may not 
result in a significant increase in trading costs for market participants because the order flow that was being 
sent to those exiting New Rule 3b-16(a) Systems would likely be absorbed and redistributed amongst other 
New Rule 3b-16(a) Systems or systems that meet the existing criteria of Rule 3b-16(a). 
381
  See DeFi Education Fund Letter at 8. 
382
  See Wells Letter at 1. 
383
  See a16z Letter at 11. 

135 
 
market participants that trade crypto asset securities will vary depending on the technologies 
these participants use to perform exchange activity. The Commission lacks some information 
necessary to precisely estimate the degree to which these market participants may experience 
greater costs of compliance, but expects that such costs would fall within a range. At the lower 
end of the range, the Commission believes that market participants that use technologies similar 
to those commonly used in the market for traditional securities, such as off-chain RFQ systems, 
will also incur similar costs of compliance.  At the other end of the scale, the Commission 
expects that costs of compliance may be significantly higher for market participants that 
extensively or exclusively use DLT, such as smart contracts, to perform exchange activities.  
Accordingly, while the Commission acknowledges that the Proposed Rules could raise barriers 
to entry into the market for crypto asset security trading services, the Commission believes that 
these barriers would be most significant for market participants that perform exchange activity in 
a way that extensively or exclusively uses DLT.  The Commission additionally believes that for 
market participants that perform exchange activity using non-DLT methods, these barriers would 
likely be comparable to those experienced by participants in the market for traditional securities 
trading services.   
One commenter states that the cost of compliance and consequences of non-compliance 
would have the effect of “chilling, restricting or prohibiting outright the creation of code for 
peer-to-peer digital asset trading or websites that provide access to information about those 
protocols.”
384
  Another commenter states that, to the extent that “adoption of the Proposal will 
cause the developers of code and smart contracts related to a Decentralized Protocol, or the 
maintainers of online websites that merely enable access to a Decentralized Protocol, to be 
 
384
  See Delphi Digital Letter at 11. 

136 
 
captured under the ‘exchange’ definition,” the proposal might cause such persons to cease their 
activities, “dealing a death blow to new activity in this sector.”
385
 
The Commission does not believe that the amended definition of exchange would include 
the entities responsible for these “Decentralized Protocols”, except to the extent that they also 
engage in activity that meets the definition of exchange as proposed to be amended in the 
Proposed Rules.
386
  While the Commission acknowledges that the Proposed Rules may impose 
compliance costs, the Commission does not believe that the circumstances in which such entities 
would incur compliance costs would differ from the circumstances in which entities in non-
crypto asset securities would incur compliance costs, namely, at the point at which such an entity 
engages in activity that meets the definition of exchange as proposed to be amended.  However, 
the Commission acknowledges that because the compliance costs for entities that trade crypto 
asset securities may be higher than for those that trade non-crypto asset securities,
387
 the impact 
of those costs on innovation in crypto asset securities may be greater. 
One commenter stated that the Proposed Rules might “drive financial innovation 
offshore.”
388
  This commenter also added that the Proposed Rules “would preclude the 
development in the U.S. of many software tools and applications, including, but not limited to, 
DeFi protocols.”
389
   
The Commission acknowledges that, to the extent that the Proposed Rules impose 
compliance costs on entities responsible for innovation, such costs may affect their decision on 
 
385
  See Blockchain Association Letter II at 6. 
386
  See supra s ection V.C.2.a. 
387
  See supra sections V.C.2.a and V.C.2.c.ii. 
388
  See DeFi Education Fund Letter at 12. 
389
  See id. at 17. 

137 
 
which jurisdiction they choose to operate their business in.  However, the Commission believes 
that these costs may be mitigated.  The Commission believes that, at the lower end of this range, 
an entity that engages in the development of new technologies in the market for crypto asset 
trading services would incur compliance costs only once its innovative technology allows 
investors to trade securities.  If such an entity develops its technology in an environment that 
does not enable investors to trade securities, such as a testnet,
390
 the Commission does not 
believe it would incur compliance costs in connection with these activities.  Additionally, while 
the Commission lacks certain data that would enable the Commission to precisely estimate the 
compliance costs that an innovative entity would face once its innovative technology enables 
investors to trade crypto asset securities, it believes that these costs would lie within a range.  At 
the lower end of this range, the Commission believes that a market participant that uses 
innovative technology similar to technology that is used in traditional financial markets would 
also incur similar compliance costs.  At the other end of the scale, the Commission expects that 
compliance costs would be largest for entities developing technologies that rely heavily on DLT, 
such as smart contracts, to perform exchange activity, and have minimal or no off-chain 
components.  The Commission additionally believes that many systems that would experience 
these higher costs could be restructured to make less extensive use of these novel technologies, 
although this could significantly reduce the extent to which these systems operate in accordance 
with “DeFi” principles. 
One commenter states their belief that the Proposed Rules would cause platforms to 
either “operate exclusively outside the United States or exit the business,” due to lack of a 
 
390
  This term refers to a blockchain designed to test technologies, such as smart contracts, in a manner that 
involves no risk of monetary loss.  Testnets support a set of tokens that are distinct from “mainnet” tokens, 
and which are freely available from “faucets” that add them to wallets on request.  As such, testnet tokens 
have no monetary value and are not securities.  See https://coinmarketcap.com/alexandria/glossary/testnet. 

138 
 
“realistic prospect of obtaining SEC authority to operate as an exchange or SEC and FINRA 
authority to operate as an ATS.”
391
  This commenter notes that the Commission had not, at the 
time of writing, “registered any digital asset platform as an exchange.”
392
   
While the Commission acknowledges that the Proposed Rules would impose costs on 
New Rule 3b-16(a) Systems that trade crypto asset securities, which may in turn raise barriers to 
entry as discussed above or create incentives to exit the market, the Commission disagrees that 
compliance would be “infeasible.”  The Commission has discussed, above, the manner and 
extent to which it believes that compliance costs may create barriers to entry for market 
participants that seek to trade crypto asset securities.  To the extent that market participants that 
trade crypto asset securities face barriers to entry or incentives to exit due to higher compliance 
costs, or perceive this to be the case, the Commission acknowledges that such entities may 
instead choose to operate outside the U.S. or exit the market. 
 Regulation ATS 
a) Regulatory Framework 
Market participants may consider registered exchanges, ATSs, and broker-dealers (e.g., 
single dealer platforms) to send their order flow in crypto asset securities.  As discussed in the 
Proposing Release,
393
 to the extent that current ATSs and New Rule 3b-16(a) Systems compete, 
the proposed changes to Exchange Act Rule 3b–16, which would subject New Rule 3b-16(a) 
Systems to the exchange regulatory framework, which includes the option to comply with 
Regulation ATS, would promote competition by requiring current ATSs and New Rule 3b-16(a) 
Systems to operate on a more equal basis in securities markets.  The Commission believes this to 
 
391
  See GDCA Letter II at 7. 
392
  See id. at 13. 
393
 See Proposing Release at 15634. 

139 
 
be the case in the market for crypto asset securities as it is in the market for the securities 
discussed in the Proposing Release.  To the extent that registered exchanges, ATSs, broker-
dealers compete for order flows in the crypto asset securities market, the differential compliance 
costs for exchange, ATS, and broker-dealer would affect competition across these different types 
of trading platforms.  The Commission acknowledges that national securities exchanges would 
incur significantly higher compliance costs than ATSs and broker-dealers, and ATSs would incur 
higher compliance costs than broker-dealers.  Higher compliance costs could put registered 
exchanges at a disadvantage in competing against ATSs and broker-dealers that trade the same 
types of securities, and similarly put ATSs at a disadvantage in competing against broker-
dealers.  Although registered exchanges, ATSs, and broker-dealers may compete for order flows, 
they provide different services and are subject to different regulatory obligations.  Furthermore, 
to the extent that New Rule 3b-16(a) Systems that use certain technologies to compete with other 
New Rule 3b-16(a) Systems for order flows, higher costs for New 3b-16(a) Systems that use 
certain technologies would put such systems at a competitive disadvantage against other New 
Rule 3b-16(a) Systems.
394
 
One commenter states that the Proposed Rules would advantage “traditional financial 
services companies,” due to “fundamentally dissimilar technologies.”
395
  This commenter adds 
that the Proposed Rules would “limit competition and transparency by entrenching existing 
market players” to the detriment of investors and the public, but does not specify who these 
existing market players might be.
396
  The commenter additionally states their concern that the 
 
394
  See supra section V.C.2.c for discussion about the additional costs for New 3b-16(a) Systems that use 
certain technologies. 
395
  See DeFi Education Fund Letter at 2. 
396
  See DeFi Education Fund Letter at 10. 

140 
 
Proposed Rules might include in the revised definition of exchange certain entities that 
contribute code “to an open-source project that subsequently allows third parties to engage in 
trading activity” but have no ability “to supervise that activity or impose limitations on the types 
of orders that are entered.”  The commenter states that under the Proposed Rules, a developer 
that cannot comply with registration requirements might leave the market or provide services to a 
traditional trading platform, “further entrenching the traditional systems.”  
The Commission does not believe that the amended definition of exchange would include 
the entities responsible for innovation in the markets for crypto assets or crypto asset trading 
services, except to the extent that they also engage in activity that meets the definition of 
exchange as amended in the Proposed Rules.
397
  The Commission acknowledges that, to the 
extent that market participants who trade crypto asset securities compete with traditional 
financial services firms and that such market participants incur greater costs of compliance,
398
 
the Proposed Rules could give traditional financial services firms a competitive advantage.  
Because the Commission lacks information on the degree to which such market participants 
would incur greater costs of compliance, the Commission cannot estimate the extent of this 
advantage.  Additionally, the Commission believes that the Proposed Rules would cause New 
Rule 3b-16(a) Systems to compete on a more equal basis with their main competitors in the 
market for crypto asset securities, which the Commission believes may already be subject to 
federal securities regulations.
399
 
 
397
  See supra section V.C.2.a. 
398
  See supra sections V.C.2.a and V.C.2.c. 
399
  See supra section II.B. 

141 
 
As discussed in the Proposing Release,
400
 the Commission acknowledges that some New 
Rule 3b-16(a) Systems could restructure their operations to not meet the Rule 3b-16 criteria as 
proposed to be amended to avoid being subject to Regulation ATS and Regulation SCI if the 
requirements are too burdensome or impair the ability of the trading venue to compete.  As in the 
Proposing Release, the Commission believes that the risk of this occurring may be mitigated 
because the proposed amendments to Rule 3b–16 may make it difficult for New Rule 3b-16(a) 
Systems to restructure their operations to not meet the Rule 3b-16 criteria as proposed to be 
amended.  To the extent this does occur, the benefits and enhancements to competition discussed 
above would be reduced.  The Commission believes that these effects would apply to New Rule 
3b-16(a) Systems that trade in crypto asset securities as they would to New Rule 3b-16(a) 
Systems that trade the securities discussed in the Proposing Release. 
As discussed in the Proposing Release,
401
 the Commission acknowledges that subjecting 
New Rule 3b-16(a) Systems to the requirements of Regulation ATS could reduce operational 
flexibility.  For example, it would be more costly for New Rule 3b-16(a) Systems to implement 
significant changes to operational facets that would be required to be reported on Form ATS or 
Form ATS-N.  This reduction in operational flexibility could, under certain circumstances, make 
it more difficult to innovate.  The Commission believes this effect would apply to New Rule 3b-
16(a) Systems that trade crypto asset securities in the same manner that it would to New Rule 3b-
16(a) Systems that trade non-crypto asset securities discussed in the Proposing Release.  
However, as in the Proposing Release, in addition to the other benefits discussed above, the 
Commission believes that the Proposed Rules could foster competition by requiring current 
 
400
 See Proposing Release at 15634. 
401
  See id. 

142 
 
ATSs and New Rule 3b-16(a) Systems to operate on a more equal basis in the market for crypto 
asset security trading services.  This, in turn, could help promote innovation. 
b) Compliance Costs of Regulation ATS 
To the extent that the costs
402
 associated with altering business practices for New Rule 
3b-16(a) Systems to come into compliance with Regulation ATS are significant enough to make 
these systems unprofitable, these systems could exit the market for crypto asset securities trading 
services, adversely affecting competition.
403
  To the extent that New Rule 3b-16(a) Systems 
using certain technologies incur additional costs to come into compliance with Regulation ATS, 
these systems could have a higher chance of exiting the market for crypto asset securities trading 
services.
404
  Furthermore, to the extent the Proposed Rules result in a New Rule 3b-16(a) System 
that trades less liquid securities exiting the market for trading services, it could increase the 
trading costs of its subscribers if they need to find a new trading venue or are forced to go 
through multiple intermediaries (i.e., broker-dealers) to find counterparties.  However, to the 
extent that the market for crypto asset securities trading services is competitive and that a limited 
number of New Rule 3b-16(a) Systems exit the market, the adverse effect on overall competition 
among trading platforms would be mitigated to some extent.   
Furthermore, the Commission preliminarily believes that the compliance costs associated 
with Regulation ATS would have different effects on the competitive position of ATSs 
 
402
  See infra sections V.C.3.a.i.c) and V.C.3.a.i.d) for discussions about the impact of costs associated with 
Rule 301(b)(1) (broker-dealer registration requirements) and Rule 301(b)(5) (the Fair Access Rule) of 
Regulation ATS on competition, respectively.  
403
  See supra sections V.C.2.b and V.C.2.c for discussion about the costs associated with changing business 
practices to come into compliance with Regulation ATS. 
404
  See supra section V.C.2.c for discussion about the additional costs associated with changing business 
practices to come into compliance with Regulation ATS for New Rule 3b-16(a) Systems that use certain 
technologies. 

143 
 
depending on their size.  As a result of the Proposed Rules, all New Rule 3b-16(a) Systems 
would be subject to Rule 301(b)(2), Rule 301(b)(9) and Rule 301(b)(10), Rule 302, and Rule 
303.  As discussed above
405
 and in the Proposing Release,
406
 most of the estimated compliance 
costs associated with these rules would be fixed costs to those New Rule 3b-16(a) Systems 
regardless of the amount of trading activity that takes place on them, and thus, these compliance 
costs would represent a larger fraction of revenue for a small (measured in trading volume) New 
Rule 3b-16(a) System relative to that for a large New Rule 3b-16(a) System.  Furthermore, most 
of the estimated compliance costs associated with the requirements of Form ATS-N under Rule 
304, which all New Rule 3b-16(a) Systems that trade NMS stocks or government securities 
would incur, would be fixed costs.
407
  This could have an adverse impact on New Rule 3b-16(a) 
Systems of small size in competing against larger ATSs, which could act as a deterrent or a 
barrier to entry for potential New Rule 3b-16(a) Systems or result in small New Rule 3b-16(a) 
Systems exiting the market for trading services.  However, if small New Rule 3b-16(a) Systems 
engage in providing simpler services, these small New Rule 3b-16(a) Systems are likely to incur 
lower compliance costs.   The Commission believes that these effects would apply to the market 
for crypto asset securities in the same manner that they would to the market for non-crypto asset 
securities. 
The Commission acknowledges the Proposed Rules could reduce operational flexibility, 
which could, under certain circumstances, make it more difficult to innovate or reduce the rate of 
the adoption of new technologies.  As in the Proposing Release, the Commission believes that, to 
the extent the Proposed Rules force an entity that develops new technologies to exit the market, 
 
405
  See supra section VIII.C.2.a.i. 
406
  See Proposing Release at note 1165. 
407
  See supra section VIII.C.2.a.i and Proposing Release, section VIII.C.2.a.i. 

144 
 
it may be able to restructure itself (rather than operate as an ATS) as a third-party vendor and 
continue to provide certain innovative services, or otherwise sell its technology to another ATS, 
which would mitigate to some extent any adverse impact the Proposed Rules may have on the 
adoption of new technologies in the market for crypto asset security trading services. 
c) Broker-Dealer Registration Requirements 
In addition to the compliance costs associated with the requirements of Regulation ATS, 
non-broker-dealer-operated New Rule 3b-16(a) Systems without a broker-dealer affiliate would 
incur additional compliance costs related to registering with the Commission as broker-dealers, 
becoming members of an SRO, such as FINRA, and maintaining broker-dealer registration and 
SRO membership.  Furthermore, these non-broker-dealer operators could incur costs associated 
with altering business practices to come into compliance with the Proposed Rules.
408
  To the 
extent that the costs associated with changing business practices to come into compliance with 
the Proposed Rules is significant enough to render non-broker-dealer operators of New Rule 3b-
16(a) Systems unprofitable to stay in the business, these operators of New Rule 3b-16(a) 
Systems would exit adversely impacting competition in the market for crypto asset securities 
trading services.
409
  However, to the extent that the market for crypto asset securities trading 
services is competitive and that a limited number of New Rule 3b-16(a) Systems exit the market, 
the adverse effect on overall competition would be mitigated. 
 
408
  See supra section V.C.2.a.ii for discussion about the costs associated with changing business practices to 
come into compliance with the Proposed Rules. 
409
  The Commission believes that the costs associated with the broker-dealer registration requirements could 
adversely affect the rate of innovation.  See supra sections V.C.3.a.i and V.C.3.a.i.c) for discussion about 
the impact of the Proposed Rules on the rate of innovation.   

145 
 
d) Ineffectiveness Declaration 
The proposed ability for the Commission to be able to declare a Form ATS-N or Form 
ATS-N amendment ineffective could result in compliance costs for New Rule 3b-16(a) Systems 
that trade NMS stocks and may affect competition in the market for NMS stock trading services.  
However, as discussed in the Proposing Release,
410
 based on Commission staff’s experience with 
NMS Stock ATSs that filed an initial Form ATS-N, the Commission preliminarily believes this 
would be an unlikely result.  The Commission believes this unlikeliness would extend to the 
market for crypto asset securities that are NMS stocks. 
e) Fair Access 
The Commission believes that applying the Fair Access Rule to New Rule 3b-16(a) 
Systems could increase competition between market participants in the markets for corporate 
debt securities, municipal securities, NMS stocks, and equity securities that are not NMS stocks.  
As discussed above, to the extent that there are market participants currently excluded from 
trading on significant New Rule 3b-16(a) Systems, applying the Fair Access Rule to New Rule 
3b-16(a) Systems could increase trading venue options available to these market participants, 
which could lower their trading costs.  This, in turn, could increase competition among market 
participants trading on these platforms, which could be significant sources of liquidity and 
represent a significant portion of trading volume in their respective markets.  However, these 
competitive effects may be reduced to the extent that some existing subscribers of trading venues 
that are subject to the Fair Access Rule redirect their trading interest to other trading venues not 
subject to the Fair Access Rule in order to preserve some of the benefits they may receive from a 
trading venue limiting access.  If the Proposed Rules to apply certain aggregate volume 
 
410
  See Proposing Release at 15636 including notes 1180 and 1183. 

146 
 
thresholds increase the number of smaller affiliate ATSs that would be subject to the Fair Access 
Rule, it could also increase competition among market participants, to the extent that certain 
market participants are currently excluded from accessing these platforms.  The Commission 
believes that these effects on competition would apply to New Rule 3b-16(a) Systems that trade 
crypto asset securities in the same manner that they would to New Rule 3b-16(a) Systems that 
trade non-crypto asset securities. 
Additionally, as discussed in the Proposing Release, the Proposed Rules to apply certain 
aggregate volume thresholds to the Fair Access Rule could also harm competition among trading 
venues in the markets for corporate debt, municipal securities, NMS stock and equity securities 
that are not NMS stocks if they cause a broker-dealer or affiliated broker-dealers that operate 
multiple ATSs to restrict trading in one or more securities, or shut down one or more of their 
smaller ATSs, in order to avoid triggering the Fair Access volume threshold.  However, because 
the trading volume on these smaller ATSs would likely be absorbed and redistributed amongst 
other ATSs or non-ATS venues, the Commission believes that the overall effects on competition 
among trading venues may not be significant.  To the extent that the markets for trading services 
are competitive, the Commission believes that such competitive effects would be applicable to 
New 3b-16(a) Systems that trade crypto asset securities that are corporate debt securities, 
municipal securities, NMS stock, and equity securities that are not NMS stocks. 
f) Public Disclosure 
As discussed in the Proposing Release,
411
 the public disclosure of Form ATS-N would 
enhance the operational transparency of New 3b-16(a) Systems that trade in NMS stocks, 
including crypto asset securities that are NMS stocks.  The enhancement in the operational 
 
411
  See Proposing Release at 15637. 

147 
 
transparency of New Rule 3b-16(a) Systems would promote competition in the markets for 
crypto asset securities trading services.  The increase in competition could result in lower venue 
fees, improve the efficiency in customer trading interest or order handling procedures, and 
promote innovation.  To the extent that non-ATS venues compete with ATSs’ order flows, the 
increased operational transparency of ATSs could also incentivize non-ATS trading venues to 
reduce their fees to compete with ATSs.  The Commission believes that these effects would 
apply to the market for crypto asset securities trading services.  However, because New Rule 3b-
16(a) Systems using smart contracts operate using code which may be, at least in part, publicly 
viewable, it is possible that the impacts of Form ATS-N disclosures on competition may be 
reduced, for such systems.  However, because this code is not disclosed in a form that is 
standardized or readable to a layman, the Commission believes that this reduction of impact may 
not be significant. 
As discussed in the Proposing Release,
412
 because the public disclosure of Form ATS-N 
would make it easier for market participants to compare the quality of trading services, such as 
innovative trading functionalities, order handling procedures, and execution statistics, market 
participants would be more likely to send their trading interests or orders to ATSs, including 
New 3b-16(a) Systems, that offer better trading services.  This would promote greater 
competition in the market for trading services and incentivize ATSs to innovate, including in 
particular, technology related to trading services to improve the quality of such services to attract 
more subscribers.  The Commission believes these effects on competition and innovation would 
apply to ATSs trading in crypto asset securities that are NMS stocks in the same manner that 
they do to ATSs that trade non-crypto asset securities.  
 
412
  See id. 

148 
 
As discussed in the Proposing Release,
413
 the public disclosure of Form ATS-N would 
also result in market participants redirecting their trading interest away from ATSs that offer 
lower quality trading services compared to other ATSs, which could result in these ATSs earning 
less revenue.  If the loss in revenue causes these ATSs to become unprofitable, they might 
choose to exit the market.  The Commission believes these effects would apply to ATSs trading 
in crypto asset securities that are NMS stocks in the same manner that they do to ATSs that trade 
non-crypto asset securities. 
As discussed in the Proposing Release,
414
 the public disclosure of previously nonpublic 
information regarding innovative operational facets of a New Rule 3b-16(a) System that trades 
NMS stock could adversely impact competition in the market for trading services and also 
reduce the incentives for these trading venues to innovate.  As in the Proposing Release, the 
Commission believes that the risk of these adverse effects occurring would be low, because the 
information disclosed on Form ATS-N is not likely to include detailed enough information 
regarding operational facets or innovations such that the public disclosure would adversely affect 
the competitive position of the disclosing ATS.  To the extent that any crypto asset security is an 
NMS stock, the Commission believes that these effects would apply as described in the 
Proposing Release to market participants wishing to trade such a security. 
As discussed in the Proposing Release,
415
 although the Commission acknowledges that 
some NMS stock ATSs could restructure their operations to be non-ATSs to avoid being subject 
to the public disclosure of Form ATS-N, the risk of this occurring may be mitigated because the 
 
413
  See id. 
414
  See id. at 15638. 
415
  See id. 

149 
 
proposed amendments to Rule 3b–16 may make it difficult for an ATS, including one that trades 
crypto asset securities, to restructure their operations to be non-ATSs. 
 Regulation SCI 
The Commission believes that the requirements imposed by Regulation SCI may not 
have a significant adverse effect on competition in the market for crypto asset security trading 
services, or on market participants’ trading costs in the market for crypto asset securities. 
As discussed in the Proposing Release,
416
 the Commission believes that the compliance 
costs imposed by Regulation SCI may not have a significant adverse effect on competition 
among SCI ATSs, non-SCI ATSs, and non-ATS venues in the NMS stock market due to 
mitigating factors.  If SCI ATSs pass on the compliance costs to their subscribers in the form of 
higher fees, SCI ATSs would lose order flow or their subscribers to other, non-SCI ATSs and 
non-ATS venues with lower fees.  Adverse competitive effects, however, would be mitigated 
because an SCI ATS would likely have more robust systems, fewer disruptive systems issues, 
and better up-time compared to non-SCI ATSs.  Furthermore, any adverse competitive effect 
may be minor if an SCI ATS is large and has a more stable and established subscriber base than 
other ATSs and non-ATS venues.  The Commission expects these effects to apply to ATSs 
trading in crypto asset securities that are NMS stocks in the same manner. 
As discussed in the Proposing Release,
417
 the compliance costs associated with 
participating in business continuity and disaster recovery plan testing would affect competition 
among subscribers of SCI ATSs and also would raise barriers to entry for new subscribers. 
Because some subscribers would incur compliance costs associated with Rule 1004 and others 
 
416
  See id. 
417
  See id. 

150 
 
would not, it would adversely impact the ability for those subscribers of SCI ATSs to compete.  
The Commission expects these effects to apply to ATSs trading in crypto asset securities that are 
NMS stocks in the same manner that they apply to ATSs that trade non-crypto asset securities, 
but as in the Proposing Release, the Commission lacks sufficient information to estimate the 
extent of impact on competition.  If larger subscribers of SCI ATSs already maintain connections 
to backup facilities including for testing purposes, the adverse impact on competition would be 
mitigated because the incremental compliance costs associated with the business continuity and 
disaster recovery plan testing requirements under Rule 1004 would be limited for those larger 
subscribers.  The Commission believes that, in the market for crypto asset securities as in the 
market for non-crypto asset securities, new subscribers are less likely to be designated 
immediately to participate in business continuity and disaster recovery plan testing than are 
existing larger subscribers because new subscribers might not initially satisfy the ATS’s 
designation standards as they establish their businesses.  
As discussed in the Proposing Release,
418
 it is difficult to estimate the costs of Regulation 
SCI for third-party vendors that operate SCI systems or indirect SCI systems on behalf of SCI 
ATSs.  If Regulation SCI imposes compliance costs on such vendors, the compliance costs 
would affect the competition among third-party vendors in the market for SCI systems or indirect 
SCI systems.  If the costs associated with Regulation SCI for third-party vendors outweigh the 
benefits of continuing to operate SCI systems or indirect SCI systems on behalf of SCI ATSs, 
these third-party vendors would exit the market for SCI systems or indirect systems.  In this 
respect, Regulation SCI would adversely impact such vendors and reduce the ability for some 
third-party vendors to compete in the market for SCI systems and indirect SCI systems, with 
 
418
  See id. 

151 
 
attendant costs to SCI ATSs.  If this happens, SCI ATSs would incur costs from having to find a 
new vendor, form a new business relationship, and adapt their systems to those of the new 
vendor. SCI ATSs might also elect to perform the relevant functions internally.  If the current 
third-party vendors are the most efficient means of performing certain functions for SCI ATSs, 
and to the extent that any third-party vendor exits the market, finding new vendors or performing 
the functions internally would represent a reduction in efficiency for SCI ATSs.  The 
Commission expects these effects to apply to ATSs trading in crypto asset securities that are 
NMS stocks, and their vendors, in the same manner that they apply to ATSs that trade non-
crypto asset securities. 
b. Efficiency and Capital Formation 
As discussed in the Proposing Release,
419
 the Commission believes the Proposed Rules 
could promote price efficiency and capital formation by reducing trading costs and the potential 
for systems disruptions on ATSs that capture a significant portion of trading volume.  As 
discussed in the Proposing Release,
420
 the proposed requirement for certain New Rule 3b-16(a) 
Systems to publicly disclose Form ATS-N could help reduce trading costs for market 
participants.  Subjecting significant New Rule 3b-16(a) Systems to the Fair Access Rule could 
also help reduce market participants’ trading costs.  A reduction in trading costs could, in turn, 
reduce limits to arbitrage and help facilitate informed traders impounding information into 
security prices, which could enhance price efficiency.  Extending Regulation SCI and Rule 
301(b)(6) would help improve systems up-time for ATSs and would also promote more robust 
systems that directly support execution facilities, order matching, and the dissemination of 
 
419
  See Proposing Release at 15639. 
420
  See id. 

152 
 
market data, which could also enhance price efficiency.  The Commission expects these effects 
to apply to ATSs that trade crypto asset securities in the same manner that they apply to ATSs 
that trade non-crypto asset securities. 
 Proposed Rules could also adversely affect the price efficiency of crypto asset securities.  
It may no longer be possible for a New Rule 3b-16(a) System to facilitate trading crypto asset 
securities for crypto assets that are not securities.  To the extent that the markets for crypto asset 
securities denominated in crypto assets that are not securities reduce transaction costs, market 
participants would experience higher transaction costs, reducing price efficiency, and impeding 
the price discovery process.
421
  Also, if ATSs restrict trading volume in certain securities to stay 
below the Fair Access Rule, Regulation SCI, and Rule 301(b)(6) thresholds, it could adversely 
affect price efficiency and capital formation.  The Commission expects these effects to apply to 
ATSs that trade crypto asset securities in the same manner that they apply to ATSs that trade 
non-crypto asset securities. 
As discussed in the Proposing Release,
422
 enhanced price efficiency could also promote 
capital formation.  On the other hand, the Commission believes that the proposed amendments of 
the Fair Access Rule, Regulation SCI, and Rule 301(b)(6) could also adversely affect price 
efficiency and capital formation if ATSs that are close to satisfying the volume threshold limit 
trading over some period restrict trading or cease operating to stay below the volume thresholds 
and avoid being subject to these rules.  To the extent that this keeps ATSs from getting larger, it 
would increase fragmentation, and thus, adversely affect price efficiency in those markets, 
harming capital formation.  The Commission expects these effects to apply to ATSs that trade 
 
421
  See supra section V.C.2.b for discussion about the costs associated with the trading of crypto asset 
securities for crypto assets that are not securities on Communication Protocol Systems. 
422
  See id. 

153 
 
crypto asset securities in the same manner that they apply to ATSs that trade non-crypto asset 
securities. 
D. Reasonable Alternatives 
 The Commission has considered several alternatives to the Proposed Rules: (1) delay 
subjecting New Rule 3b-16(a) Systems that exclusively trade crypto asset securities to the 
Proposed Rules; (2) subject only New Rule 3b-16(a) Systems that trade government securities to 
the Proposed Rules; (3) subject only New Rule 3b-16(a) Systems that trade fixed income 
securities to the Proposed Rules; (4) exempt New Rule 3b-16(a) Systems that use only non-firm 
trading interest from the Fair Access Rule; (5) exempt New Rule 3b-16(a) Systems that use only 
non-firm trading interest from Regulation SCI; (6) stipulate that systems offering non-firm 
trading interest only meet the definition of an exchange if they offer anonymous interactions; and 
(7) use a more explicit and prescriptive approach in defining the type of non-firm trading interest 
system that meets the definition of an exchange. 
1. Delay Subjecting New Rule 3b-16(a) Systems that Exclusively Trade 
Crypto Asset Securities to the Proposed Rules 
As discussed above, the Commission received comment, and is soliciting comment, on 
the application of the Proposed Rules to systems that trade crypto asset securities.  As an 
alternative, the Commission could adopt the proposed changes to Rule 3b-16(a), but delay 
applying the changes to New Rule 3b-16(a) Systems that trade crypto asset securities.
423
 
 
423
  Alternatively, a delay could be implemented for other types of securities.  See supra section III.E.  As 
discussed above, for purposes of adopting a different compliance date for New Rule 3b-16(a) Systems that 
trade crypto asset securities, crypto asset securities could be defined as, for example, securities that are also 
issued and/or transferred using distributed ledger or blockchain technology, including, but not limited to, 
so-called “virtual currencies,” “coins,” and “tokens,” to the extent they rely on cryptographic protocols.  
The Commission is soliciting comment on the definition.  See id. 

154 
 
Importantly, this alternative of a delayed compliance period would be only with respect 
to the application of the new rules. Notwithstanding inclusion of this alternative of providing a 
delayed compliance date with respect to New Rule 3b-16(a) Systems that trade crypto asset 
securities, the Commission emphasizes that operators of trading systems, including those trading 
crypto asset securities, need to evaluate whether they meet the criteria of existing Exchange Act 
Rule 3b-16(a), and thus must register as a national securities exchange or operate pursuant to an 
exemption to such registration, or meet the definition of a “broker” or “dealer” that is required to 
register with the Commission and become a member of a self-regulatory organization.  In this 
regard, the Commission will continue to evaluate whether currently operating systems are acting 
consistently with federal securities laws and the rules thereunder.  
Relative to the proposal, this alternative would result in delayed benefits and costs 
because market participants that trade in crypto asset securities using New Rule 3b-16(a) 
Systems would not accrue benefits
424
 and costs
425
 discussed in sections V.C.1 and V.C.2 or in 
the Proposing Release until the delayed compliance date.  Similarly, this alternative would result 
in delayed effects on efficiency, competition, and capital formation discussed above.
426
   
This alternative could result in several additional effects.  It may be that New Rule 3b-
16(a) Systems that trade in both crypto asset securities and non-crypto asset securities would 
have the incentive to separate crypto asset securities trading, which would be subject to the 
 
424
  Affected benefits would include delayed enhancements to regulatory oversight and investor protection, 
delayed reductions of trading costs, delayed improvements to execution quality, smaller enhancements of 
price discovery and liquidity, and delayed benefits from electronic filing requirements as described above.  
See supra section V.C.1. 
425
  Affected costs would include delayed implementation costs, delayed costs associated with broker-dealer 
requirements, ineffectiveness declaration, the Fair Access Rule, Rule 301(b)(6), and Regulation SCI, and 
delayed indirect costs as described above.  See supra section V.C.2. 
426
  See supra section V.C.3. 

155 
 
delay.  This could reduce efficiency.  Relative to the proposal, New Rule 3b-16(a) Systems that 
trade exclusively in crypto asset securities would enjoy a competitive advantage for a longer 
period of time over New Rule 3b-16(a) Systems that trade both crypto asset securities and 
securities that are not crypto assets due to delayed compliance costs.  Furthermore, relative to the 
proposal, to the extent that crypto asset securities of any type of security may be considered 
substitutes for non-crypto asset securities of the same type, and that platforms that trade such 
crypto asset securities compete with those that trade their non-crypto asset security counterparts, 
the platforms that trade crypto asset securities would enjoy a competitive advantage over those 
that trade non-crypto asset securities. 
2. Subject Only New Rule 3b-16(a) Systems that Trade Government 
Securities to the Proposed Rules 
As an alternative, the Commission considered subjecting only New Rule 3b-16(a) 
Systems that trade government securities to the Proposed Rules.  New Rule 3b-16(a) Systems 
play a significant role in the market for government securities.  One of the roles of these New 
Rule 3b-16(a) Systems is to provide a means to communicate trading interest in the dealer-to-
customer market.  The Commission understands that these systems are a significant component 
of the dealer-to-customer segment of government securities market and account for a significant 
portion of the total trading volume in government securities.
427
   
Under this alternative, New Rule 3b-16(a) Systems that trade securities other than 
government securities would not be subject to the Proposed Rules.  Relative to the proposal, this 
alternative would result in smaller benefits and costs as well as reduced effects on efficiency, 
competition, and capital formation.  Market participants that utilize New Rule 3b-16(a) Systems 
 
427
  See Proposing Release at 15601 and 15602. 

156 
 
to trade securities other than government securities would not accrue benefits from the 
requirements of Regulation ATS discussed in the Proposing Release.  Under this alternative, 
relative to the proposal, market participants trading in securities other than government securities 
would not accrue the benefits of the Proposed Rules including the enhancement in regulatory 
oversight and investor protection, the reduction in trading costs, and the enhancement of price 
discovery and liquidity.
428
  In addition, to the extent that ATSs and New Rule 3b-16(a) Systems 
compete for order flows in securities markets other than government securities, ATSs would not 
be able to compete against New Rule 3b-16(a) Systems on a more equal regulatory basis, which 
would adversely impact competition relative to the proposal.  On the other hand, relative to the 
proposal, the Commission believes that reduced regulatory requirements would help maintain 
operational flexibility, which in turn, would help promote innovations for New Rule 3b-16(a) 
Systems that trade securities other than government securities.  Furthermore, the Commission 
believes that lower compliance costs would help promote competition in the market for trading 
services with respect to non-government securities relative to the proposal. 
3. Subject Only New Rule 3b-16(a) Systems that Trade Fixed Income 
Securities to the Proposed Rules 
As an alternative, the Commission could consider subjecting only New Rule 3b-16(a) 
Systems that trade fixed income securities that are not crypto asset securities
429
 to the Proposed 
Rules.  New Rule 3b-16(a) Systems play a significant role by providing means to communicate 
trading interest in the dealer-to-customer market in fixed income securities trading.  The 
 
428
  See supra section V.C.1 for discussion about the benefits of the Proposed Rules. 
429
  Fixed income securities would include government securities, corporate debt securities, municipal 
securities, and asset-backed securities as discussed in the Proposing Release. 

157 
 
Commission understands that these New Rule 3b-16(a) Systems account for a significant portion 
of the total trading volume in fixed income securities.
430
 
Under this alternative, New Rule 3b-16(a) Systems that trade securities other than fixed 
income securities would not be subject to the Proposed Rules.  Relative to the proposal, this 
alternative would result in smaller benefits and costs as well as reduced effects on efficiency, 
competition, and capital formation.  Market participants that utilize New Rule 3b-16(a) Systems 
to trade securities other than fixed income securities would not accrue benefits from the 
requirements of Regulation ATS discussed in the Proposing Release.  For example, market 
participants that trade crypto asset securities via New Rule 3b-16(a) Systems would not benefit 
from investor protection provisions of Regulation ATS.  On the other hand, relative to the 
proposal, the Commission believes that reduced regulatory requirements would help maintain 
operational flexibility, which in turn, would help promote innovations for New Rule 3b-16(a) 
Systems that trade securities other than fixed income securities.  Furthermore, relative to the 
proposal, the Commission believes that lower compliance costs would help promote competition 
in the market for trading services with respect to non-fixed income securities. 
4. Exempt New Rule 3b-16(a) Systems that Use Only Non-Firm Trading 
Interest from the Fair Access Rule 
As an alternative, the Commission considered exempting New Rule 3b-16(a) Systems 
that only use non-firm trading interests from the Fair Access Rule of Regulation ATS.  Relative 
to the proposal, significant New Rule 3b-16(a) Systems that only use non-firm trading interests 
would not incur the costs associated with the Fair Access Rule, which may potentially include 
significant costs for altering business practices to comply with the rule.  On the other hand, to the 
 
430
  See Proposing Release at 15601, 15602, 15605, 15606, 15607, and 15609. 

158 
 
extent that there are market participants who are unreasonably denied access to significant New 
Rule 3b-16(a) Systems that only use non-firm trading interests, the execution quality for these 
market participants would be worse relative to the proposal. 
5. Exempt New Rule 3b-16(a) Systems that Use Only Non-Firm Trading 
Interest from Regulation SCI 
As an alternative, the Commission considered exempting New Rule 3b-16(a) Systems 
that only use non-firm trading interests from Regulation SCI.  The requirements of Regulation 
SCI would result in significant costs for significant New Rule 3b-16(a) Systems.  Relative to the 
proposal, significant New Rule 3b-16(a) Systems that only use non-firm trading interests would 
not incur the costs associated with Regulation SCI, which could include significant costs for 
establishing and maintaining geographically diverse backup facilities.  This could promote 
competition by lowering the barriers to entry and reducing the incidences of exit relative to the 
proposal.  On the other hand, relative to the proposal, the frequency and severity of systems 
issues could be higher and the duration of systems issues could be longer, which would harm 
price discovery and adversely impact trading costs of market participants.     
6. Stipulate that Systems Offering Non-Firm Trading Interest Only 
Meet the Definition of an Exchange If They Offer Anonymous 
Interactions 
As an alternative, the Commission considered excluding systems that only use non-firm 
trading interests and do not offer anonymous protocols
431
 from the definition of an exchange.  
Under this alternative, many significant fully disclosed dealer-to-customer RFQ platforms that 
 
431
  An anonymous protocol in this context means that counterparties stay anonymous until the terms (i.e., price 
and quality) of the trade is fixed between the two counterparties engaged in a transaction. 

159 
 
trade fixed income securities including government securities, corporate debt securities, and 
municipal securities would not meet the definition of an exchange, and thus, would not incur the 
costs associated with the Proposed Rules.  Furthermore, lower costs would help promote 
innovation in the market for securities trading services relative to the proposal.  However, 
because this alternative would exclude many significant trading systems that would meet the 
definition of exchange as proposed to be amended that trade fixed income securities, the benefits 
of the Proposed Rules would be significantly reduced relative to the proposal. 
7. Use a More Explicit and Prescriptive Approach in Defining the Type 
of Non-Firm Trading Interest System that Meets the Definition of an 
Exchange 
As an alternative, the Commission considered a more explicit and prescriptive approach 
in defining an exchange by providing a list of specific types of systems that meet the definition 
of an exchange (or, by providing a list of specific types of systems that do not meet the definition 
of an exchange).  Relative to the proposal, this approach would reduce uncertainty and the costs 
associated with the proposed activity-based definition of an exchange.  A more explicit and 
prescriptive definition of an exchange could reduce legal costs associated with complying with 
the proposed activity-based definition of an exchange.
432
  Furthermore, the reduction in such 
costs could help promote innovation in the market for securities trading services.  On the other 
hand, a more explicit and prescriptive definition of an exchange could make it easier for a 
trading venue to modify its systems to operate as a non-exchange, which would not be subject to 
the Proposed Rules.  Relative to the proposal, this would result in lower benefits.  For example, 
 
432
  See also supra section V.C.2.b.ii for discussion about the costs associated with complying with the 
proposed functional-test-based definition of an exchange. 

160 
 
market participants that utilize such trading venues would not benefit from investor protection 
provisions of Regulation ATS. 
E. Request for Comments 
44. In the Proposing Release, the Commission proposed to replace the term “uses” with 
the term “makes available” before “established, non-discretionary methods” in Rule 
3b-16(a)(2) because the Commission proposed to include as an established, non-
discretionary method communication protocols under which buyers and sellers can 
interact and agree to the terms of a trade.
433
  Would this proposed change have costs 
for developers of technology that are not reflected in the economic analysis?  Would 
adopting alternative language (such as “Uses established, non-discretionary methods 
(whether by providing, directly or indirectly, a trading facility...),” “[E]stablishes 
non-discretionary methods (whether by providing, directly or indirectly, a trading 
facility or...)”) result in different costs than the proposed language?
434
 
45. Do commenters agree with the Commission’s characterization of platforms in the 
market for crypto assets securities?  Please provide any relevant details that you 
believe are missing from the Commission’s description. 
46. Please provide any information on the number and type of venues that permit trading 
crypto asset securities for fiat currency.  
47. Do commenters agree with the Commission’s characterization of the technology used 
by systems in the market for crypto assets securities?  Please provide any relevant 
details that you believe are missing from the Commission’s description. 
 
433
  See Proposing at 15506.  See also supra section III.B. 
434
  See supra Requests for Comment #10-11. 

161 
 
48. Do commenters agree with the Commission’s characterization of New Rule 3b-16(a) 
Systems that trade crypto asset securities?  Please provide any relevant details that 
you believe are missing from the Commission’s description. 
49. Please provide any data on crypto asset securities trading volume and trading volume 
share of New Rule 3b-16(a) Systems. 
50. Please provide any information on the types of protocols used by New Rule 3b-16(a) 
Systems that trade crypto assets securities. 
51. Do commenters agree with the Commission’s characterization of other methods 
(other than platforms) of trading in the market for crypto assets securities?  Please 
provide any relevant details that you believe are missing from the Commission’s 
description. 
52. Please provide any information on the current market practice for bilateral voice 
trading and electronic chat messaging in trading crypto assets securities. 
53. Please provide any information on the role of bilateral voice trading in the market for 
crypto assets securities. 
54. Do commenters agree with the Commission’s characterization of crypto asset 
securities trading services?  Please provide any relevant details that you believe are 
missing from the Commission’s description. 
55. Would the Proposed Rules enhance regulatory oversight and investor protection in 
the market for crypto asset securities?  Would requiring New Rule 3b-16(a) Systems 
that trade crypto asset securities to register as broker-dealers help lead to these 
benefits?  Would the Proposed Rules lead to improvements in the safeguarding of 
confidential information in the market for crypto asset securities? 

162 
 
56. Do commenters agree that the Proposed Rules would reduce trading costs and 
improve execution quality for market participants that use New Rule 3b-16(a) 
Systems?  Do commenters agree that Regulation SCI would improve the resiliency of 
New Rule 3b-16(a) Systems in the applicable securities markets?  Do commenters 
agree that Rule 301(b)(6) would improve the resiliency of such systems in the 
applicable securities markets? 
57. Are there any other benefits of subjecting to the exchange regulatory framework a 
New Rule 3b-16(a) S ystem which uses certain technologies that allow them to run 
portions of their operations using smart contracts deployed on an underlying 
blockchain?  Please explain. 
58. Do commenters agree with the Commission’s assessment of the entities that would 
incur costs in the crypto asset security market as a result of the Proposed Rules?  If 
not, please provide examples of additional entities that would incur costs. 
59. Do commenters agree with the Commission’s assessment of the implementation costs 
estimated in the Reopening Release?  If not, please provide as many quantitative 
estimates to support your position on costs as possible. 
60. Please provide any insights or data on the costs associated with the proposed broker-
dealer requirements for New Rule 3b-16(a) Systems that are operated by non-broker-
dealers. 
61. The Commission solicits comment on any circumstances in which actors within a 
group of persons, which can include, for example, the provider(s) of the DeFi 
application or user interface, developers of AMMs or other DLT code, DAO, 
validators or miners, and issuers or holders of governance or other tokens,  may incur 

163 
 
costs in connection with their activities that may constitute, maintain, or provide a 
market place or facilities for bringing together buyers and sellers of securities under 
Exchange Rule 3b-16, as proposed to be amended. 
62. Do commenters agree with the Commission’s assessment of the costs for systems that 
use certain technology and trade crypto asset securities as described in section 
V.C.2.c?  Please explain. 
63. Do commenters agree with the Commission’s assessment that the compliance costs 
associated with bringing a New Rule 3b-16(a) System that uses certain technologies 
that allow them to run portions of their operations using smart contracts deployed on 
an underlying blockchain into compliance may be greater than those for other 
platforms that trade crypto asset securities?  If so, which costs do commenters expect 
to be greater, and why?  Please explain and share any relevant data. 
64. Do commenters agree with the Commission’s assessment of the costs that may be 
associated with bringing a New Rule 3b-16(a) System that uses certain technologies 
that allow it to run portions of its operations using smart contracts deployed on an 
underlying blockchain into compliance?  Do commenters believe that such costs 
could be significant?  Please explain and share any relevant data. 
65. Do commenters agree with the Commission’s assessment of the initial compliance 
costs for New Rule 3b-16(a) Systems that use certain technologies that allow them to 
run portions of their operations using smart contracts deployed on an underlying 
blockchain?  Please explain. 
66. Do commenters agree with the Commission’s assessment of the costs that miners or 
validators may bear?  Please explain and share any relevant data.  

164 
 
67. Please provide examples of automation of New Rule 3b-16(a) Systems by means of 
immutable smart contracts. 
68. Do commenters agree with the Commission’s assessment of the impact of the 
Proposed Rules on efficiency, competition and capital formation?  Do commenters 
agree that the Proposed Rules would allow for competition among trading systems on 
a more equal basis?  Do commenters agree with the Commission’s assessment as to 
the risks of increasing barriers to entry and causing current trading systems to exit the 
market?  Please explain. 
69. To what extent would the Proposed Rules increase the barriers to entry for new 
trading venues or cause some existing trading venues to exit the market?  How would 
these effects vary based on the size and/or type of trading venue and the securities 
market in which it operates?  Please explain. 
70. How would the Proposed Rules affect innovation?  Please explain.  Which provisions 
of the Proposed Rules would affect innovation the most and how?  Please explain. 
71. To what extent would the Proposed Rules cause existing trading venues to cease 
operating in the United States, if at all?  If the Proposed Rules would have any such 
effect, which provisions of the Proposed Rules would be most responsible for this 
effect, and how?  Please explain and share any relevant data. 
72. Do commenters agree with the Commission’s assessment of the effects of an 
alternative to delay subjecting New Rule 3b-16(a) Systems that exclusively trade 
crypto asset securities to the Proposed Rules? 

165 
 
73. Do commenters agree with the Commission’s assessment of the effects of an 
alternative to subject only New Rule 3b-16(a) Systems that trade government 
securities to the Proposed Rules? 
74. Do commenters agree with the Commission’s assessment of the effects of an 
alternative to subject only New Rule 3b-16(a) Systems that trade fixed income 
securities to the Proposed Rules? 
75. For purposes of determining compliance with the Fair Access Rule and Regulation 
SCI, an ATS must determine its trading volume to assess whether the ATS is subject 
to these rules.  Does an ATS have the ability to obtain the necessary information to 
calculate thresholds to determine if the ATS is subject to Regulation SCI and 
Regulation ATS?  Why or why not?   
By the Commission. 
Dated: April 14, 2023. 
 
J. Matthew DeLesDernier,  
Deputy Secretary. 

Conformed to Federal Register version 

SECURITIES AND EXCHANGE COMMISSION 

17 CFR Parts 232, 240, 242, and 249 

[Release No. 34-97309; File No. S7-02-22] 

RIN 3235-AM45 

Supplemental Information and Reopening of Comment Period for Amendments Regarding 

the Definition of “Exchange”    

AGENCY: Securities and Exchange Commission. 

ACTION: Proposed rule; reopening of comment period.   

SUMMARY: The Securities and Exchange Commission (“Commission”) is reopening the 

comment period for its proposal (“Proposed Rules”) to amend the rule under the Securities 

Exchange Act of 1934 (“Exchange Act”) that defines certain terms used in the statutory 

definition of “exchange.”  The reopening provides supplemental information and economic 

analysis regarding trading systems that trade crypto asset securities that would be newly included 

in the definition of “exchange” under the Proposed Rules.  The Commission is requesting further 

information and public comment on certain aspects of the Proposed Rules as applicable to all 

securities and the compliance dates and other alternatives for the Proposed Rules.  The Proposed 

Rules were set forth in Release No. 34-94062 (“Proposing Release”), and the related comment 

period, which was reopened in Release No. 34-94868 on May 9, 2022, ended on June 13, 2022.  

The reopening of this comment period is intended to allow interested persons further opportunity 

to analyze and comment on the Proposed Rules in light of the supplemental information provided 

herein (“Reopening Release”). 



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DATES: The comment period for the proposed amendments published on March 18, 2022, at 87 

FR 15496, which was initially reopened on May 12, 2022, at 87 FR 29059, is again reopened.  

Comments should be received on or before June 13, 2023. 

ADDRESSES: Comments may be submitted by any of the following methods: 

Electronic Comments: 

• Use the Commission’s internet comment form (https://www.sec.gov/regulatory-

actions/how-to-submit-comments); or  

• Send an email to [email protected].  Please include File Number S7-02-22 on the 

subject line. 

Paper Comments: 

• Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street 

NE, Washington, DC 20549-1090.   

All submissions should refer to File Number S7-02-22.  This file number should be 

included on the subject line if email is used.  To help the Commission process and review your 

comments more efficiently, please use only one method of submission.  The Commission will 

post all comments on the Commission’s website (https://www.sec.gov/rules/proposed.shtml).  

Comments are also available for website viewing and printing in the Commission’s Public 

Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between 

the hours of 10 a.m. and 3 p.m.  Operating conditions may limit access to the Commission’s 

Public Reference Room.  All comments received will be posted without change.  Persons 

submitting comments are cautioned that we do not redact or edit personal identifying information 

from comment submissions.  You should submit only information that you wish to make 

available publicly.  

https://www.sec.gov/regulatory-actions/how-to-submit-comments
https://www.sec.gov/regulatory-actions/how-to-submit-comments
mailto:[email protected]
https://www.sec.gov/rules/proposed.shtml


3 
 

 Studies, memoranda, or other substantive items may be added by the Commission or staff 

to the comment file during this rulemaking.  A notification of the inclusion in the comment file 

of any materials will be made available on the Commission’s website.  To ensure direct 

electronic receipt of such notifications, sign up through the “Stay Connected” option at 

www.sec.gov to receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: Tyler Raimo, Assistant Director, Matthew 

Cursio, David Garcia, Eugene Hsia, Megan Mitchell, Amir Katz, Special Counsels, and Joanne 

Kim, Attorney Advisor, at (202) 551-5500, Office of Market Supervision, Division of Trading 

and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. 

SUPPLEMENTARY INFORMATION:    

I. Background 

A. Exchange Regulatory Framework 

Exchange Act section 3(a)(1) states that the term “exchange” means any organization, 

association, or group of persons, whether incorporated or unincorporated, which constitutes, 

maintains, or provides a market place or facilities for bringing together purchasers and sellers of 

securities or for otherwise performing with respect to securities the functions commonly 

performed by a stock exchange as that term is generally understood, and includes the market 

place and the market facilities maintained by such exchange.1  

Title 17 section 240.3b-16(a) (“Rule 3b-16(a)”) defines certain terms in the definition of 

“exchange” under section 3(a)(1) of the Exchange Act to include any organization, association, 

or group of persons that: (1) brings together the orders for securities of multiple buyers and 

sellers; and (2) uses established, non-discretionary methods (whether by providing a trading 

 
1  See 15 U.S.C. 78c(a)(1).   

http://www.sec.gov/


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facility or by setting rules) under which such orders interact with each other, and the buyers and 

sellers entering such orders agree to the terms of a trade.2  Title 17 section 240.3b-16(b) (“Rule 

3b-16(b)”) explicitly excludes certain systems from the definition of “exchange.”3  Title 17 

section 240.3b-16 (“Rule 3b-16”) provides a functional test to assess whether a trading platform 

meets the definition of exchange and, if so, triggers exchange registration.  Section 5 of the 

Exchange Act4 requires an organization, association, or group of persons that meets the 

definition of “exchange” under section 3(a)(1) of the Exchange Act, unless otherwise exempt, to 

register with the Commission as a national securities exchange pursuant to section 6 of the 

Exchange Act.5   

Title 17 section 240.3a1-1(a)(2) (“Rule 3a1-1(a)(2)”) exempts from the Exchange Act 

section 3(a)(1) definition of “exchange” an organization, association, or group of persons that 

complies with Regulation ATS, which requires, among other things, meeting the definition of an 

alternative trading system (“ATS”) and registering as a broker-dealer.6  As a result of the 

exemption, an organization, association, or group of persons that meets the definition of an 

exchange and complies with Regulation ATS is not required by section 5 of the Exchange Act to 

register as a national securities exchange pursuant to section 6 of the Exchange Act, is not an 

 
2  See 17 CFR 240.3b-16(a). 
3  See Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 70844, 70852 (Dec. 22, 1998) 

(“Regulation ATS Adopting Release”).  Specifically, Rule 3b-16(b) excludes from the definition of 
“exchange” systems that perform only traditional broker-dealer activities, including: systems that route 
orders to a national securities exchange, a market operated by a national securities association, or a broker-
dealer for execution, or systems that allow persons to enter orders for execution against the bids and offers 
of a single dealer if certain additional conditions are met.  17 CFR 240.3b-16(b). 

4  15 U.S.C. 78e.  Registered national securities exchanges are also self-regulatory organizations (“SROs”), 
and must comply with regulatory requirements applicable to both national securities exchanges and SROs. 

5  15 U.S.C. 78f. 
6  “Regulation ATS” consists of 17 CFR 242.300 through 242.304 (Rules 300 through 304 under the 

Exchange Act).  



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SRO, and, therefore, is not required to comply with the regulatory requirements applicable to 

national securities exchanges and SROs.7  

B. January 2022 Proposed Amendments to Exchange Act Rule 3b-16 

As described more fully in the Proposing Release,8 the Commission proposed to amend 

Exchange Act Rule 3b-16 to, among other things, replace “orders” with “trading interest” and 

define “trading interest”;9 remove the term “multiple” before “buyers and sellers”;10 add 

“communication protocols” as an example of an established, non-discretionary method that an 

organization, association, or group of persons can provide to bring together buyers and sellers of 

securities; simplify and align the rule text with the statutory definition of “exchange” under 

section 3(a)(1) of the Exchange Act; and add an exclusion under Exchange Act Rule 3b-16(b) for 

systems that allow an issuer to sell its securities to investors.    

 
7  An ATS that fails to comply with the requirements of Regulation ATS would no longer qualify for the 

exemption provided under Rule 3a1-1(a)(2), and thus, risks operating as an unregistered exchange in 
violation of section 5 of the Exchange Act.  See Securities Exchange Act Release No. 83663 (July 18, 
2018), 83 FR 38768, 38772 n.36 (Aug. 7, 2018) (“NMS Stock ATS Adopting Release”). 

8  See Securities Exchange Act Release No. 94062 (Jan. 26, 2022), 87 FR 15496 (Mar. 18, 2022).  The 
Proposed Rules also: (1) re-proposed amendments to Regulation ATS for ATSs that trade government 
securities as defined under section 3(a)(42) of the Exchange Act or repurchase and reverse repurchase 
agreements on government securities (“Government Securities ATSs”); (2) proposed amendments to Form 
ATS-N for NMS Stock ATSs and Government Securities ATSs; (3) proposed amendments to 17 CFR 
242.301(b)(5) (“Rule 301(b)(5)”) of Regulation ATS (“Fair Access Rule”) for ATSs; (4) proposed to 
require electronic filing of and to modernize Form ATS and Form ATS-R; and (5) re-proposed 
amendments to regulations regarding systems compliance and integrity to apply to ATSs that meet certain 
volume thresholds in U.S. Treasury Securities or in a debt security issued or guaranteed by a U.S. executive 
agency, or government-sponsored enterprise.   

9  As proposed, “trading interest” (defined in proposed Rule 300(q) of Regulation ATS) would include 
“orders,” as the term is defined under 17 CFR 240.3b-16(c) (“Rule 3b-16(c)”), or any non-firm indication 
of a willingness to buy or sell a security that identifies at least the security and either quantity, direction 
(buy or sell), or price.  See Proposing Release at 15540. 

10  The Commission proposed removing the word “multiple” from Exchange Act Rule 3b-16(a)(1) to mitigate 
confusion as to its application to non-firm trading interest, including request-for-quote (“RFQ”) systems, 
and align the rule more closely with the statutory definition of “exchange,” which does not contain the 
word “multiple” but includes the plural terms “purchasers and sellers.”  See id. at 15506.  The Commission 
also stated in the Proposing Release that the use of plural terms in “buyers and sellers” in Rule 3b-16(a) and 
“purchasers and sellers” in the statutory definition of “exchange” makes sufficiently clear that an exchange 
need only have more than one buyer and more than one seller participating on the system to meet this 
prong.  See id. at 15506 n.105.  



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Specifically, the Commission proposed to amend Exchange Act Rule 3b-16(a) to include 

within the definition of “exchange” an organization, association, or group of persons that 

constitutes, maintains, or provides a market place or facilities for bringing together buyers and 

sellers of securities or for otherwise performing with respect to securities the functions 

commonly performed by a stock exchange if it is not subject to an exception under Rule 3b-16(b) 

and it: (1) brings together buyers and sellers of securities using trading interest; and (2) makes 

available established, non-discretionary methods (whether by providing a trading facility or 

communication protocols, or by setting rules) under which buyers and sellers can interact and 

agree to the terms of a trade.  For purposes of this Reopening Release, trading systems that meet 

the criteria of Exchange Act Rule 3b-16(a), as proposed to be amended (i.e., offer the use of non-

firm trading interest and provide non-discretionary protocols),11 are referred to throughout the 

release as “New Rule 3b-16(a) Systems.”  New Rule 3b-16(a) Systems would be subject to the 

definition of “exchange” and be required to register as a national securities exchange or comply 

with the conditions to an exemption to such registration, such as Regulation ATS.   

C. Purpose of the Reopening Release 

In response to the Proposing Release, the Commission received many comments.12  In 

particular, the Commission received requests for information about the application of the 

Proposed Rules to trading systems for crypto asset securities13 and trading systems that use 

 
11  Such systems were referred to as “Communication Protocol Systems” in the Proposing Release.  See id. at 

15497 n.5. 
12  See infra sections II.A and II.B.  Comment letters cited in this Reopening Release are comment letters 

received in response to the Proposing Release, which are available at https://www.sec.gov/comments/s7-
02-22/s70222.htm.  

13  See infra note 26. 

https://www.sec.gov/comments/s7-02-22/s70222.htm
https://www.sec.gov/comments/s7-02-22/s70222.htm


7 
 

distributed ledger or blockchain technology (broadly referred to as “DLT”),14 including systems 

commenters characterize as decentralized finance or “DeFi.”15  Commenters request information 

about whether and how such systems can comply with existing federal securities laws and the 

Proposed Rules.16  Given these comments, the Commission is issuing this Reopening Release 

regarding the potential effects of the proposed amendments to Exchange Act Rule 3b-16 on 

trading systems for crypto asset securities and trading systems using DLT, including systems 

commenters characterize as various forms of “DeFi,” and requesting further information and 

public comment on aspects of the Proposed Rules, more generally.  This Reopening Release also 

supplements the economic analysis in the Proposing Release by providing additional analysis on 

the estimated impact of the Proposed Rules on trading systems for crypto asset securities and 

those using DLT, which include various so-called “DeFi” trading systems, and requests further 

comment. 

 
14  The terms DLT and blockchain, a type of DLT, generally refer to databases that maintain information 

across a network of computers in a decentralized or distributed manner. Blockchain networks commonly 
use cryptographic protocols to ensure data integrity.  See, e.g., World Bank Group, “Distributed Ledger 
Technology (DLT) and Blockchain,” FinTech Note No. 1 (2017), available at 
https://openknowledge.worldbank.org/bitstream/handle/10986/29053/WP-PUBLIC-Distributed-
LedgerTechnology-and-Blockchain-Fintech-Notes.pdf?sequence=1&isAllowed=y. 

15  Commenters vary in their definitions of “DeFi,” or what makes a product, service, arrangement or activity 
“decentralized.”  See generally The Board of the International Organization of Securities Commissions, 
IOSCO Decentralized Finance Report (Mar. 2022) (“IOSCO Decentralized Finance Report”), available at 
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf.  Trading systems for crypto assets that are 
colloquially referred to as “decentralized” typically combine more traditional technology (such as web-
based systems that accept and display orders and servers that store orders) with distributed ledger 
technology (such as “smart contract” provisioned blockchains – self-executing code run on distributed 
ledgers that carry out “if/then” type computations).  See id. at 1.  See also infra note 44.   

16  See, e.g., infra notes 25, 58, 80, 82-84, and 86-87. 

https://openknowledge.worldbank.org/bitstream/handle/10986/29053/WP-PUBLIC-Distributed-LedgerTechnology-and-Blockchain-Fintech-Notes.pdf?sequence=1&isAllowed=y
https://openknowledge.worldbank.org/bitstream/handle/10986/29053/WP-PUBLIC-Distributed-LedgerTechnology-and-Blockchain-Fintech-Notes.pdf?sequence=1&isAllowed=y
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf


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II. Exchange Activity Involving Crypto Asset Securities and DLT under the Proposed 

Rules 

A. Crypto Asset Securities 

Commenters reflecting a broad range of market participants shared feedback on the 

application of the Proposed Rules to all securities, including crypto assets that are securities.  

Some commenters agree with the Commission’s view17 that the Proposed Rules should apply to 

trading in any type of security, regardless of the specific technology used to issue and/or transfer 

the security.18  Several commenters request that the Commission clarify whether the Proposed 

Rules apply to crypto asset securities.19  Commenters point to the lack of any explicit references 

in the Proposing Release to systems that trade crypto asset securities, including so-called “DeFi” 

trading systems, with some suggesting that such systems would be outside the scope of the 

Proposed Rules.20  One commenter states that the Proposed Rules should not apply to crypto 

asset securities.21  Some commenters state their view that there is supposed regulatory 

 
17  See Proposing Release at 15503. 
18  See, e.g., Letters from Marcia E. Asquith, Executive Vice President, Board and External Relations, FINRA, 

dated Apr. 19, 2022 (“FINRA Letter”) at 4; Stephen W. Hall, Legal Director and Securities Specialist, and 
Scott Farnin, Legal Counsel, Better Markets, Inc., dated Apr. 18, 2022 (“Better Markets Letter”) at 8; Tyler 
Gellasch, Executive Director, Healthy Markets Association, dated June 13, 2022 (“Healthy Markets 
Letter”) at 6 n.21 (stating that the Proposed Rules should apply only to crypto assets that meet the 
definition of a security under the Exchange Act “to avoid unnecessarily creating regulatory inconsistencies 
and loopholes, and fulfill its investor protection mandate”).    

19  See, e.g., Letters from Jai Ramaswamy, Chief Legal Officer and Miles Jennings, General Counsel, 
a16zCrypto, A.H. Capital Management, LLC, dated Apr. 18, 2022 (“a16z Letter”) at 3; Kristin Smith, 
Executive Director and Jake Chervinsky, Head of Policy, Blockchain Association, dated Apr. 18, 2022 
(“Blockchain Association Letter II”) at 7-8; Brett Kitt, Associate Vice President, Principal Associate 
General Counsel, Nasdaq, Inc., dated Apr. 18, 2022 (“Nasdaq Letter”) at 5; Joanna Mallers, Secretary, FIA 
Principal Traders Group, dated Apr. 21, 2022 (“FIA PTG Letter”) at 2; Sheila Warren, Chief Executive 
Officer, Crypto Council for Innovation, dated Apr. 18, 2022 (“Crypto Council Letter”) at 2; Sasha Hodder, 
Hodder Law Firm, P.A., dated Feb. 25, 2022; Tim Lau, dated Apr. 4, 2022; Zachary Stinson, dated Apr. 18, 
2022 (“Stinson Letter”); Karthik Mahalingam, dated Apr. 19, 2022. 

20  See, e.g., Letters from Michelle Bond, Chief Executive Officer, Association for Digital Asset Markets, 
dated Apr. 18, 2022 (“ADAM Letter II”) at 14; Gus Coldebella and Gregory Xethalis, dated Apr. 18, 2022 
(“Coldebella and Xethalis Letter”) at 1-2; Crypto Council Letter at 3; a16z Letter at 7. 

21  See ADAM Letter II at 3, 9-12. 



9 
 

uncertainty as to which crypto assets are securities.22  Some commenters state that as a result of 

such supposed uncertainty, it is unclear whether the Proposed Rules would apply to so-called 

“DeFi” protocols.23  One commenter states that the Commission should defer action on any 

rulemaking impacting crypto assets until, among things, such supposed uncertainty is 

eliminated.24  Some commenters state that the existing exchange regulatory framework is 

incompatible with systems that trade crypto asset securities using so-called “DeFi protocols.”25  

 
22  See, e.g., a16z Letter at 3, 15-16 (stating that the Commission has not made clear which digital assets it 

believes are “securities”); Blockchain Association Letter II at 3, 9 (stating whether and when a given digital 
asset may qualify as a security under federal securities laws remains unclear); Letter from LeXpunK, dated 
Apr. 18, 2022 (“LeXpunK Letter”) at 2 n.4 (stating that given the “lack of clarity with respect to the 
Commission’s classification of digital assets and transactions involving digital assets,” “there remains a 
looming uncertainty as to whether the same would be regarded as securities and securities transactions, 
respectively”). 

23  See, e.g., a16z Letter at 3, 15-16 (stating that given the uncertainty on which digital assets are “securities,” 
some so-called “DeFi systems or protocols” that do not clearly meet the definition of “Communication 
Protocol Systems” or facilitate transactions in digital assets could endeavor to comply with the Proposed 
Rules while other “DeFi systems or protocols” might not, which raises the danger of inconsistency and 
could create unforeseen consequences in the market for digital assets); Blockchain Association Letter II at 
3, 9 (stating that given the Commission’s “expansive view of what may be deemed a security, there remains 
a risk that certain digital assets that users trade through Decentralized Protocols may (ex post) be deemed 
by the [Commission] to be securities”).  See also Damien G. Scott, Deputy General Counsel, CoinList, 
dated Apr. 18, 2022 (“CoinList Letter”) at 1-2 (explaining that crypto asset industry needs clarity about 
how the rules written for traditional paper securities secured and validated by intermediaries apply in 
practice to new digital technology). 

24  See Letter from Jay H. Knight, Chair of the Federal Regulation of Securities Committee, Federal 
Regulation of Securities Committee of the Business Law Section of the American Bar Association, dated 
Apr. 18, 2022 (“ABA Letter”) at 5-6 (suggesting the Commission defer the application of the Proposed 
Rules to digital asset intermediaries and their underlying technology pending completion of coordination 
among a broad range of government agencies to develop an appropriate approach to digital assets, pursuant 
to the Executive Order on Ensuring the Responsible Development of Digital Assets). 

25  See, e.g., a16z Letter at 9 (“But even casting aside the practical challenges that DeFi protocols would 
confront in attempting to follow Regulation ATS, the Commission seems to overlook the fact that the 
purposes behind Regulation ATS would not be served by imposing its requirements on DeFi protocols.”); 
Letter from William C. Hughes, Senior Counsel & Director of Global Regulatory Matters, ConsenSys 
Software Inc., dated Apr. 14, 2022 (“ConsenSys Letter”) at 8 (“The ’34 Act’s requirements, tailored as they 
are to the centralized nature of exchanges, make no sense when applied to decentralized blockchain-based 
systems.”); Letter from Delphi Digital, dated Apr. 18, 2022 (“Delphi Digital Letter”) at 6 (stating that 
“systems lacking order-book logic, or which are sufficiently decentralized (i.e., lacking any particular 
owner/operator who could rationally be expected to comply with the SEC’s intermediaries-based regulatory 
regime)” have been viewed by participants in the digital asset marketplace as outside the scope of securities 
exchange regulation).  One commenter cites a paper stating that “[s]ome characteristics of DeFi may be 
incompatible with the existing regulatory framework, particularly given that the current framework is 
designed for a system that has financial intermediaries at its core.”  See Letter from Jake Chervinsky, Head 

 



10 
 

Crypto assets26 generally use DLT as a method to record ownership and transfers.27  

Further, a crypto asset that is a security is not a separate type or category of security (e.g., NMS 

stock, corporate bond) for purposes of federal securities laws based solely on the use of DLT.  

The definition of “exchange” under section 3(a)(1) of the Exchange Act and existing Rule 3b-16 

thereunder, and the requirement that an exchange register with the Commission pursuant to 

section 5 of the Exchange Act, apply to all securities, including crypto assets that are securities, 

which include investment contracts or any other type of security.28  The Commission 

understands that currently certain trading systems for crypto assets, including so-called “DeFi” 

systems, operate like an exchange as defined under federal securities laws—that is, they bring 

together orders of multiple buyers and sellers using established, non-discretionary methods (by 

providing a trading facility, for example) under which such orders interact and the buyers and 

sellers entering such orders agree upon the terms of a trade.29  Because it is unlikely that systems 

 
of Policy, Blockchain Association and Miller Whitehouse-Levine, Policy Director, DeFi Education Fund, 
dated June 13, 2022 (“Blockchain Association/DeFi Education Fund Letter”) at 4 (citing Org. for Econ. 
Cooperation and Dev., Why Decentralised Finance (DeFi) Matters and the Policy Implications (2022) at 
12). 

26  For purposes of this Reopening Release, the Commission does not distinguish between the terms “digital 
asset securities” and “crypto asset securities.”  The term “digital asset” refers to an asset that is issued 
and/or transferred using distributed ledger or blockchain technology, including, but not limited to, so-called 
“virtual currencies,” “coins,” and “tokens.”  See Securities Exchange Act Release No. 90788 (Dec. 23, 
2020), 86 FR 11627, 11627 n.1 (Feb. 26, 2021) (“Commission Statement on Custody of Digital Asset 
Securities by Special Purpose Broker-Dealers”).  A digital asset may or may not meet the definition of a 
“security” under the federal securities laws.  See, e.g., Report of Investigation Pursuant to Section 21(a) of 
the Securities Exchange Act of 1934: The DAO, Securities Exchange Act Release No. 81207 (July 25, 
2017) (“DAO 21(a) Report”), available at https://www.sec.gov/litigation/investreport/34-81207.pdf.  See 
also SEC v. W.J. Howey Co., 328 U.S. 293 (1946).  To the extent digital assets rely on cryptographic 
protocols, these types of assets also are commonly referred to as “crypto assets.” 

27  See Investment Advisers Act Release No. 6240 (Feb. 15, 2023), 88 FR 14672, 14676 n.25 and 
accompanying text (Mar. 9, 2023); Securities Exchange Act Release No. 96496 (Dec. 14, 2022), 88 FR 
5440, 5448 n.94 and accompanying text (Jan. 27, 2023).  

28  Section 3(a)(1) of the Exchange Act and Rule 3b-16 thereunder do not apply to market places or facilities 
that do not trade securities.  This would also remain unchanged under Exchange Act Rule 3b-16, as 
proposed to be amended. 

29  In addition to its exchange obligations, depending on the facts and circumstances, an organization, 
association, or group of persons engaging in crypto asset securities business may also have legal and 

 

https://www.sec.gov/litigation/investreport/34-81207.pdf


11 
 

trading a large number of different crypto assets are not trading any crypto assets that are 

securities,30 these systems likely meet the current criteria of Exchange Act Rule 3b-16(a) and are 

subject to the exchange regulatory framework.31  Indeed, the President’s Executive Order on 

Ensuring Responsible Development of Digital Assets acknowledged that “many activities 

involving digital assets are within the scope of existing domestic laws and regulations” and 

systems trading such assets “should, as appropriate, be subject to and in compliance with 

regulatory and supervisory standards that govern traditional market infrastructures and financial 

firms.”32  The proposed amendments to Exchange Act Rule 3b-16 do not change any existing 

obligation for these systems to register as a national securities exchange or comply with the 

conditions to an exemption to such registration, such as Regulation ATS.33   

The Commission preliminarily believes that some amount of crypto asset securities trade 

on New Rule 3b-16(a) Systems, and that such systems may use DLT or be “DeFi” trading 

systems, as described by some commenters.  Depending on facts and circumstances, systems that 

 
regulatory obligations under the federal securities laws for broker-dealer, custodial, clearing, or lending 
activities, among others.  See U.S. Securities and Exchange Commission v. Beaxy Digital, Ltd., et al., No. 
23-cv-1962 (N.D. Ill. Mar. 29, 2023) (Docket Entries 1, 4) (final judgment entered on consent enjoining 
crypto asset trading platform from operating an unregistered exchange, broker, and clearing agency).  

30  See Fin. Stability Oversight Council, Report on Digital Asset Financial Stability Risks and Regulation 119 
(2022) (“FSOC Report”) at 97, available at https://home.treasury.gov/system/files/261/FSOC-Digital-
Assets-Report-2022.pdf.  Each system should analyze whether the crypto assets that it offers for trading 
meet the definition of a security under the federal securities laws and prior Commission statements.  See 
supra note 26.  The Commission will continue to evaluate whether currently operating systems are acting 
consistent with federal securities laws and the rules thereunder.   

31  See, e.g., DAO 21(a) Report at 17 (“The Platforms that traded DAO Tokens appear to have satisfied the 
criteria of Rule 3b-16(a) and do not appear to have been excluded from Rule 3b-16(b).”); In the Matter of 
Zachary Coburn, Securities Exchange Act Release No. 84553 (Nov. 8, 2018) (settled cease-and-desist 
order); In the Matter of Poloniex, LLC, Securities Exchange Act Release No. 92607 (Aug. 9, 2021) (settled 
cease-and-desist order).   

32  See President’s Executive Order on Ensuring Responsible Development of Digital Assets, dated Mar. 9, 
2022, available at https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-
order-on-ensuring-responsible-development-of-digital-assets/. 

33  17 CFR 242.300 through 242.304. 

https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf
https://home.treasury.gov/system/files/261/FSOC-Digital-Assets-Report-2022.pdf
https://www.law.cornell.edu/cfr/text/17/242.300


12 
 

offer the use of non-firm trading interest and provide non-discretionary protocols to bring 

together buyers and sellers of crypto assets securities34 can perform a market place function like 

that of an exchange—that is, they allow participants to discover prices, find liquidity, locate 

counterparties, and agree upon terms of a trade for securities.  The exchange regulatory 

framework would provide market participants that use New Rule 3b-16(a) Systems for crypto 

asset securities with transparency, fair and orderly markets, and investor protections that apply to 

today’s registered exchanges or ATSs.35  These benefits, in turn, promote capital formation, 

competition, and market efficiencies.36  An organization, association, or group of persons that 

constitutes, maintains, or provides a market place or facilities for bringing together purchasers 

and sellers of crypto asset securities or performs with respect to crypto asset securities the 

functions commonly performed by a stock exchange as that term is generally understood under 

the criteria of Exchange Act Rule 3b-16(a), as proposed to be amended, would be an exchange 

under section 3(a)(1) of the Exchange Act and would be required to register as a national 

securities exchange or comply with the conditions of Regulation ATS.   

Some commenters question the application of the proposed amendments to Exchange Act 

Rule 3b-16 to assets that may not be securities.37  In addition, commenters indicate that many 

 
34  See Proposing Release at 15503. 
35  See Regulation ATS Adopting Release at 70847. 
36  See 15 U.S.C. 78c(f).  
37 See ADAM Letter II at 9 (stating that “it is premature of the SEC to include digital assets within the scope 

of the exchange regulatory framework until such time as there is a better understanding regarding the 
appropriate regulatory approach for such assets”); LeXpunK Letter at 2 n.4 (stating “where digital asset 
transactions do not involve securities, U.S. securities laws (and the instant proposed rulemaking) would be 
inapplicable” and that “in light of the lack of clarity with respect to the Commission’s classification of 
digital assets and transactions involving digital assets, however, there remains a looming uncertainty as to 
whether the same would be regarded as securities and securities transactions, respectively”); a16z Letter at 
15-16 (stating that the Proposing Release “does not mention ‘digital asset securities’ or ‘investment 
contracts,’ two of the terms the Commission uses to describe digital assets believed to be securities” and 
that the “omissions will further compound the uncertainty over whether the Proposal was meant to cover 
digital assets”). 



13 
 

crypto asset trading systems offer pairs trading,38 which typically involves two crypto assets 

(which may or may not be securities) that can be exchanged directly for each other using their 

relative price (“trading pair”).39  Trading pairs consist of both a base and quote asset; the base 

asset is the asset quoted in terms of the value of the other (i.e., quote) asset in the trading pair.40  

Today, trading pairs can include a combination of securities and non-securities and frequently 

include so-called stablecoins, bitcoin, or ether as the base asset, quote asset, or both.41  Users 

entering a trading pair on a system can exchange one crypto asset for another without 

exchanging the crypto asset for U.S. dollars (or other fiat currency) by simultaneously selling 

one asset while buying another on the system without exchanging either crypto asset for U.S. 

dollars first.   

Section 3(a)(1) of the Exchange Act and Rule 3b-16 state that an exchange is any 

organization, association, or group of persons which constitutes, maintains, or provides a market 

place or facilities for bringing together purchasers and sellers of securities or for otherwise 

performing with respect to securities the functions commonly performed by a stock exchange as 

 
38  See LeXpunK Letter at 4 and 4 n.19; Delphi Digital Letter at 7 (stating that, in the context of systems that 

use “technology in DeFi,” automated market makers (“AMMs”) use “liquidity pools,” which “represents 
assets in (and a market for) a single token pair” that are “‘locked’ within smart contracts”).   

39  See Fan Fang, Carmine Ventre, Michail Basios et al., Cryptocurrency Trading: A Comprehensive Survey, 8 
FIN. INNOVATION 13 (2022), available at https://doi.org/10.1186/s40854-021-00321-6 (stating that in 
general, pairs trading involves two similar assets with a stable long-run relationship and slightly different 
spreads, and if the spread widens, investors short the high-priced crypto asset and buy the low-priced 
crypto asset). 

40  See A Review of Cryptoasset Market Structure and Regulation in the United States, Feb. 2023, Program on 
International Financial Systems, available at https://www.pifsinternational.org/cryptoasset-market-
structure-and-regulation-in-the-u-s/ (“PIFS Crypto Review”). 

41  Crypto asset trading pairs offered by trading systems today also include other combinations (e.g., crypto 
asset (security or non-security) for another crypto asset (security or non-security)).  While some of the 
major crypto asset trading systems available in the U.S. allow trading in U.S. dollars, others only allow 
trading between different crypto assets and not fiat currencies.  The main base asset used on certain of these 
other systems is Tether (USDT).  See Igor Makarov & Antoinette Schoar, Trading and Arbitrage in 
Cryptocurrency Markets, 135 J. FIN. ECON. 293 (2020).  See also PIFS Crypto Review at 10-11 (stating that 
most global bitcoin trading is conducted with stablecoins rather than fiat currency). 

https://doi.org/10.1186/s40854-021-00321-6
https://www.pifsinternational.org/cryptoasset-market-structure-and-regulation-in-the-u-s/
https://www.pifsinternational.org/cryptoasset-market-structure-and-regulation-in-the-u-s/


14 
 

that term is generally understood.42  An organization, association, or group of persons that meets 

the criteria of existing Exchange Act Rule 3b-16(a), and Rule 3b-16(a), as proposed to be 

amended, and makes available for trading a security and a non-security would meet the 

definition of “exchange” notwithstanding the fact that the entity traded non-securities.  For its 

securities activities, the organization, association, or group of person must register as a national 

securities exchange or comply with the conditions of Regulation ATS.43  Market places or 

facilities of, and the functions performed by, national securities exchanges and ATSs trade only 

securities quoted in and paid for in U.S. dollars.  

The Commission is soliciting additional comment on Rule 3b-16, as proposed to be 

amended, and in particular responses to the following questions:  

1. Should a New Rule 3b-16(a) System that trades crypto asset securities have the 

choice of registering as a national securities exchange or complying with the 

conditions of Regulation ATS?  Why or why not?   

2. Please describe any trading systems that currently offer the use of non-firm trading 

interest and provide non-discretionary protocols to bring together buyers and sellers 

of crypto asset securities, including a description of trading interest used, 

functionalities or protocols, requirements, limitations, types of market participants 

that use the systems, transaction volume, crypto asset securities offered for trading, 

and any other services offered by the system.  Please provide any data, literature, or 

 
42  See 15 U.S.C. 78c(a)(1). 
43  Section 5 of the Exchange Act states that “[i]t shall be unlawful for any . . . exchange, directly or indirectly, 

to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using 
any facility of an exchange within or subject to the jurisdiction of the United States to effect any transaction 
in a security, or to report any such transaction, unless such exchange (1) is registered as national securities 
exchange under [section 6 of the Exchange Act], or (2) is exempted from such registration . . . .”  See 15 
U.S.C. 78e. 



15 
 

other information that you consider relevant to the Commission’s analysis of New 

Rule 3b-16(a) Systems for crypto asset securities, including but not limited to, the 

types of systems, the amount of trading volume on such systems, the number of 

participants on such systems (as well as the participant types, such as institutional and 

retail), and the types of crypto asset securities they trade. 

3. Do organizations, associations, or groups of persons that meet the criteria of New 

Rule 3b-16(a) Systems and trade crypto asset securities quote a security in an asset 

other than in U.S. dollars, such as a non-security crypto asset, and provide for the 

purchase or sale of that asset on the system or off-system?  How do investors and 

trading systems use pairs trading involving non-security crypto assets and crypto 

asset securities?  Are there significant differences between investors’ use of pairs 

trading on centralized trading systems versus trading systems that commenters 

describe as “DeFi”?  Please explain.  For example, approximately how much trading 

volume for crypto asset securities is executed using trading pairs on various types of 

platforms discussed above?  What percentage of trading in crypto asset securities, in 

terms of volume executed, is in exchange for U.S. dollars?  Please provide any data, 

literature, or other information that you consider relevant to the Commission’s 

analysis. 

B. Exchange Activity Using DLT, Including “DeFi” Systems 

1. Technology Neutral and Functional Test of the “Exchange” Definition 

The Commission received comments regarding whether the proposed amendments to 

Exchange Act Rule 3b-16 were intended to apply to what commenters characterize as “DeFi,” 

and comments stating that the Proposed Rules could be interpreted to cover a broad range of 



16 
 

technologies, including technologies used by so-called “DeFi” trading systems.44  Some 

commenters state that so-called “DeFi” trading systems should be excluded from Exchange Act 

Rule 3b-16(a), as proposed to be amended.45      

 
44  See, e.g., ConsenSys Letter at 8-9 (requesting that any final rule make clear that “blockchain-based 

systems” would not be exchanges); a16z Letter at 1, 2, 28 (stating, among other things, that the Proposed 
Rules could be interpreted as applying to a broad array of technologies, including “DeFi systems and 
protocols”); Crypto Council Letter at 2, 4 (stating, in part, that the Proposed Rules could apply to the 
“crypto and decentralized finance markets”); LeXpunK Letter at 3 (stating, in part, its belief that many 
“DeFi protocols and applications” would meet the definition of a “communication protocol system” under 
the Proposed Rules); Global Digital Asset & Cryptocurrency Association, dated Apr. 18, 2022 (“GDCA 
Letter II”) at 11 (questioning whether “decentralized exchanges” would fall under the definition of 
“exchange”); Letter from Miller Whitehouse-Levine, Policy Director, DeFi Education Fund, dated Apr. 18, 
2022 (“DeFi Education Fund Letter”) at 3, 15 (stating, in part, that, without clarification, the Proposed 
Rules could be interpreted to regulate certain “DeFi protocols”); Letter from Dante Disparte, Chief Strategy 
Officer and Head of Global Policy, Circle Internet Financial, LLC, dated Apr. 18, 2022 (“Circle Letter”) at 
3; Letter from Michelle Bond, Chief Executive Officer, Association for Digital Asset Markets, dated Feb. 
2, 2022 (“ADAM Letter I”) at 1-2 (stating that the Proposed Rules could expand Commission authority 
over “spot digital asset markets and peer-to-peer decentralized networks” in ways not discussed in the 
Proposing Release); Letter from Kimberly Unger, The Security Traders Association of New York, dated 
Feb. 3, 2022 (“STANY Letter”) at 2; Letter from Andrew Vollmer, Mercatus Center at George Mason 
University, dated Mar. 11, 2022 (“Vollmer Letter”) at 2.  Two commenters also state their belief that there 
is a lack of clarity as to the application of the Proposed Rules to “decentralized finance” or “DeFi 
protocols” that raises administrative due process concerns for industry participants.  See ConsenSys Letter 
at 18; DeFi Education Fund Letter at 19.  The foregoing commenters describe systems that use DLT with 
varying definitions and terminology (some of which the commenters do not define).  As discussed above, 
there is no generally agreed upon definition of “DeFi” or decentralization.  See IOSCO Decentralized 
Finance Report at 1, 9.  Nonetheless, as discussed below, the Proposed Rules, like the existing exchange 
framework, regulate exchange activity, and not the technology underlying such activity.   

45  See, e.g., a16z Letter at 3 (stating that “DeFi protocols eliminate the need for a central operator that could 
implement regulatory requirements applicable to traditional securities exchanges or broker-dealers” and 
therefore the Commission should “clarify that the [p]roposal does not apply to DeFi systems by explicitly 
excluding them”); LeXpunK Letter at 2 (stating that the Proposed Rules would improperly expand the 
Commission’s authority to regulate “technologists with neither the resources nor the reasonable expectation 
of being so regulated, who ‘make available’ peer-to-peer ‘communication protocols’ used in DeFi”); 
ConsenSys Letter at 8-12 (stating its belief that the term “communication protocols” does not cover 
“blockchain-based systems”); Delphi Digital Letter at 6 (stating that, unless “decentralized-in-actuality 
software systems – including ‘automatic market-making’ smart contract systems” are carved out of the 
term “communication protocols,” the Proposed Rules would impose “impossible compliance obligations on 
persons who may merely write open-source ‘communications protocol’ code or publish information about 
the contents of communications systems which they do not control”); Blockchain Association Letter II at 3 
(stating that application of the Proposed Rules to “decentralized exchange protocols through which digital 
assets may be traded, [and] operate[d] autonomously and automatically through smart contracts and the 
participation of their users” would exceed the Commission’s statutory authority under the Exchange Act); 
Letter from Spence Purnell, Director of Technology Policy, Reason Foundation, dated Feb. 23, 2022 at 2 
(stating that the Proposed Rules should not apply to “technologies such as decentralized finance and smart-
contracts” because they were not explicitly considered in the Proposing Release); Letter from Bryant 
Eisenbach, dated Feb. 2, 2022 (“Eisenbach Letter”).  See also Letter from Rep. Patrick McHenry, Ranking 
Member, and Rep. Bill Huizenga, Ranking Member Subcommittee on Investor Protection, 
Entrepreneurship and Capital Markets, House Committee on Financial Services, dated Apr. 18, 2022 

 



17 
 

When adopting Exchange Act Rule 3b-16, the Commission stated that the exchange 

framework is based on the functions performed by a trading system, not on its use of 

technology.46  Notwithstanding how an entity may characterize itself or the technology it uses, a 

functional approach (taking into account the relevant facts and circumstances) will be applied 

when assessing whether the activities of a trading system meet the definition of an 

exchange.  These principles continue to apply today under existing Rule 3b-16 and would 

equally apply under Rule 3b-16, as proposed to be amended.47  Accordingly, an organization, 

association, or group of persons that uses any form or forms of technology (e.g., DLT, including 

technologies used by so-called “DeFi” trading systems, computers, networks, the Internet, cloud, 

telephones, algorithms, a physical trading floor) that constitutes, maintains, or provides a market 

place for bringing together purchasers and sellers of securities, including crypto asset securities, 

or for otherwise performing with respect to securities the functions commonly performed by a 

stock exchange under the current criteria of Exchange Act Rule 3b-16(a), or Exchange Act Rule 

3b-16(a), as proposed to be amended, would be an exchange and would be required to register as 

a national securities exchange or comply with the conditions of Regulation ATS.   

 
(“McHenry/Huizenga Letter”) (expressing concern that the Proposed Rules “can be interpreted to expand 
the SEC’s jurisdiction beyond its existing statutory authority to regulate market participants in the digital 
asset ecosystem, including in decentralized finance”).  

46  See Regulation ATS Adopting Release at 70902.   
47  See, e.g., DAO 21(a) Report (stating that “any entity or person engaging in the activities of an exchange, 

such as bringing together the orders for securities of multiple buyers and sellers using established non-
discretionary methods under which such orders interact with each other and buyers and sellers entering 
such orders agree upon the terms of the trade, must register as a national securities exchange or operate 
pursuant to an exemption from such registration,” “the automation of certain functions through this 
technology, ‘smart contracts,’ or computer code, does not remove conduct from the purview of the U.S. 
federal securities laws,” and that the requirements of the U.S. federal securities laws “apply to those who 
offer and sell securities in the United States, regardless whether the issuing entity is a traditional company 
or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. 
dollars or virtual currencies, and regardless whether they are distributed in certificated form or through 
distributed ledger technology”).  



18 
 

2. So-Called “DeFi” Systems and Exchange Act Rule 3b-16 

Several commenters state their belief that the Proposed Rules could cause what they 

describe as “DeFi” trading systems to meet the criteria of Exchange Act Rule 3b-16(a), as 

proposed to be amended.48  So-called “DeFi” trading systems can be used to allow investors to 

discover prices, find liquidity, locate counterparties, and agree upon terms of a trade for 

securities, including crypto asset securities, thereby performing market place activities or 

functions commonly performed by a stock exchange.  Today, many systems, some of which are 

described as “DeFi” by commenters, bring together buyers and sellers of securities, including 

crypto asset securities, and could meet the existing criteria of Exchange Act Rule 3b-16(a).  The 

Commission understands that so-called “DeFi” trading systems often rely on electronic messages 

that are exchanged between buyers and sellers so that they can agree upon the terms of a trade 

without negotiations.49  If these electronic messages constitute a firm willingness to buy or sell a 

security, including a crypto asset security, the messages would meet the definition of orders 

 
48  See DeFi Education Fund Letter at 15; Circle Letter at 3; ADAM Letter I at 1-2; STANY Letter at 2; 

Vollmer Letter at 2; Crypto Council Letter at 2; LeXpunK Letter at 7-8. 
49  For example, AMM is a mechanism designed to create liquidity for others seeking to effectuate trades.  See 

President’s Working Group on Financial Markets, Federal Deposit Insurance Corporation, and Office of the 
Comptroller of the Currency, Report on Stablecoins (Nov. 2021), available at 
https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf.  Liquidity pools of so-called 
“DeFi” trading systems rely on AMM protocols which typically use preset mathematical equations (e.g., 
x*y=k, where x and y represent the values of tokens in a liquidity pair and k is a constant) to ensure the 
ratio of assets in the liquidity pools remains balanced and determine prices based on trading volumes.  See 
U.S. Department of the Treasury, Crypto-Assets: Implications for Consumers, Investors, and Businesses 
(Sept. 2022) (“Crypto-Assets Treasury Report”), available at 
https://home.treasury.gov/system/files/136/CryptoAsset_EO5.pdf.  Some commenters argue that systems 
that use AMMs do not use trading interest as described in the Proposed Rules.  See LeXpunK Letter at 12-
13; Delphi Digital Letter at 9-10.  One commenter states that AMM users do not interact with each other 
but with a pool of liquidity resting in a smart contract.  See LeXpunK Letter at 12-13.  This commenter 
states that forms of non-firm trading interest – conditional orders and indications of interest – discussed in 
the Proposing Release, “do not align with AMMs provision of automated liquidity through the smart 
contract-based deterministic mechanisms,” where no party imposes such conditions or communicates such 
interest.  See id.  One commenter states that there are no “orders” on an AMM because, in contrast to a 
“centralized” platform which permits makers and takers to agree upon a price, an AMM sets the price.  See 
Delphi Digital Letter at 9-10. 

https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf
https://home.treasury.gov/system/files/136/CryptoAsset_EO5.pdf


19 
 

under existing Rule 3b-16(c).50  And if established, non-discretionary method(s) under which 

orders of multiple buyers and sellers interact with each other are provided, such as through the 

provision of certain smart contract functionality, the activities would be covered under existing 

Rule 3b-16(a).  Accordingly, depending on the facts and circumstances, activities performed 

today using so-called “DeFi” trading systems could meet the criteria of existing Rule 3b-16 and 

thus constitute exchange activity.  The proposed amendments to Rule 3b-16(a) would not, in any 

way, change whether such activities constitute exchange activity under section 3(a)(1) and Rule 

3b-16(a). 

As discussed above, the Commission preliminarily believes that New Rule 3b-16(a) 

Systems, including some so-called “DeFi” systems, trade some amount of crypto asset securities, 

and would, under the proposed amendments to Exchange Act Rule 3b-16(a), be required to 

register as a national securities exchange or comply with the conditions of Regulation ATS.  

3. Custodial Services is Generally Not Relevant to Exchange Analysis 

Some commenters state that because so-called “DeFi” trading systems do not custody 

assets, they should not be subject to exchange regulation.51  One commenter states that trading 

conducted using “DeFi” trading systems does not involve users depositing assets with a central 

authority.52  Another commenter states that “custody” with reference to “DeFi” means self-

custody, which the commenter states does not fit “the Commission’s model, under which all 

 
50  See 17 CFR 240.3b-16(c). 
51  See a16z Letter at 8-9; GDCA Letter II at 11; DeFi Education Fund Letter at 6.  See also LeXpunK Letter 

at 4 n.18 (stating that no “‘custody’ or ‘transfer’ actually occurs” in the context of a “smart contract-based 
platform”).  

52  See a16z Letter at 8-9.  The commenter cites a paper stating “one of the main advantages of decentralized 
exchanges over centralized exchanges is the ability for users to keep control of their private keys.”  See id. 
at 8 n.41 (citing Igor Makarov & Antoinette Schoar, Cryptocurrencies and Decentralized Finance (DeFi) 23 
(Brookings Paper on Econ. Activity, Conference Draft, 2022)).   



20 
 

exchanges are centralized.”53  Neither existing Exchange Act Rule 3b-16 nor Rule 3b-16, as 

proposed to be amended, requires an organization, association, or group of persons to provide 

custodial services to be considered an exchange under section 3(a)(1) of the Exchange Act and 

Rule 3b-16 thereunder.54  Thus, custodial services generally is not a relevant factor to the 

exchange analysis.    

4. Group of Persons as the Exchange 

Some commenters ask that the Commission explain which actor or group of actors would 

be responsible for compliance and how so-called “DeFi” trading systems should comply with 

exchange regulatory requirements.55  Some commenters express concerns that the proposed 

amendments to Exchange Act Rule 3b-16(a) would inappropriately apply to systems that purport 

not to involve intermediaries.56  One commenter states that providers of rule sets on how 

messages should be formed, stored, and relayed on a network are not like “intermediaries of the 

 
53  See GDCA Letter II at 11.  See also DeFi Education Fund Letter at 6 (stating “DeFi protocols” present “no 

financial risk for users from broker activity or custody”).  One commenter also states that the Commission 
has provided no public guidance regarding how a digital asset communication protocol system could 
arrange for custody and settlement to the Commission’s satisfaction, in order to operate as an exchange.  
See GDCA Letter II at 10.  Further, some commenters question how exchange regulation will apply to 
trading activities that use “DeFi” and do not involve an intermediary for trading or to custody securities.  
See supra note 52 and infra note 56. 

54  The Customer Protection Rule requires a broker-dealer to promptly obtain and thereafter maintain physical 
possession or control of all fully-paid and excess margin securities it carries for the account of customers.  
See 17 CFR 240.15c3-3(b).  In 2020, the Commission issued a statement describing its position that, for a 
period of five years, special purpose broker-dealers operating under the circumstances set forth in the 
statement will not be subject to a Commission enforcement action on the basis that the broker-dealer deems 
itself to have obtained and maintained physical possession or control of customer fully-paid and excess 
margin crypto asset securities for purposes of 17 CFR 240.15c3-3(b)(1) (“Rule 15c3-3(b)(1)”) under the 
Exchange Act.  See Commission Statement on Custody of Digital Asset Securities by Special Purpose 
Broker-Dealers.  To date, no person has been approved to act as a special purpose broker-dealer custodying 
crypto asset securities.   

55  See Letter from Paul Grewal, Chief Legal Officer, Coinbase Global, Inc., dated Apr. 18, 2022 (“Coinbase 
Letter”) at 7; a16z Letter at 3; Blockchain Association Letter II at 8. 

56  See a16z Letter at 10; ConsenSys Letter at 8; DeFi Education Fund Letter at 3, 11; Blockchain Association 
Letter II at 3, 5; CoinList Letter at 2; Eisenbach Letter at 2.  For example, one commenter states that what it 
calls “decentralized” systems allow anyone to participate rather than rely on gatekeepers.  See ConsenSys 
Letter at 8.21 
 

traditional financial system” because “all they are doing is publishing particular arrangements of 

0s and 1s.”57  In addition, some commenters state that “DeFi” trading systems may be unable to 

comply with exchange regulatory requirements because they lack a central operator.58  Some 

commenters interpret Exchange Act Rule 3b-16(a), as proposed to be amended, to mean that 

each entity that performs any exchange function would need to register as a national securities 

exchange or comply with the conditions of Regulation ATS.59  For example, some commenters 

state that, under the proposed amendments to Exchange Act Rule 3b-16(a), exchange regulation 

could extend to persons including open source developers who contribute code to the software 

repositories where software for so-called “DeFi” trading systems is first published, persons who 

republish and share this information, and persons who connect to the peer-to-peer networks on 

which “DeFi” activities takes place.60  One commenter states that the group of persons involved 

in a “DeFi” trading system – including developers, AMMs, and miners – could all comprise 

essential components of the market infrastructure.61  This commenter further states that the fact 

that these roles might be “decentralized” does not change that they would be considered a group 

 
57  See Letter from Coin Center, dated Apr. 14, 2022 (“Coin Center Letter”) at 13.  Another commenter states 

that developers of “DeFi protocols” would not qualify as a “group of persons” because they “merely make 
tools available for parties to communicate.”  See DeFi Education Fund Letter at 15. 

58  See, e.g., a16z Letter at 3; Coin Center Letter at 12; CoinList Letter at 2; GDCA Letter II at 11; Blockchain 
Association/DeFi Education Fund Letter at 5. 

59 See, e.g., Letter from Robert Toomey, Managing Director and Associate General Counsel, Securities 
Industry and Financial Markets Association, dated June 13, 2022 (“SIFMA Letter II”) at 8. 

60  See Coin Center Letter at 25.  See also Delphi Digital Letter at 9 (stating that participants could “number in 
the hundreds or thousands and be distributed all over the world”). 

61  See Letter from James F. Tierney, Assistant Professor of Law, University of Nebraska College of Law, 
dated June 13, 2022 (“Tierney Letter”) at 2 (stating that these participants in “blockchain and other DeFi 
applications” all “might play analogous roles to in-house counsel, market makers, and back-office 
clearance roles in a traditional exchange setup”).  



22 
 

of persons who constitutes, maintains, or provides facilities for bringing together purchasers and 

sellers of securities.62   

The existence of smart contracts on a blockchain does not materialize in the absence of 

human activity or a machine (or code) controlled or deployed by humans.  The Commission 

understands that, typically, including for so-called “DeFi” trading systems, a single organization 

constitutes, maintains, or provides the market place or facilities for bringing together buyers and 

sellers of securities or otherwise performs with respect to securities the functions commonly 

performed by a stock exchange under section 3(a)(1) and Exchange Act Rule 3b-16 thereunder.63   

While it is common today for a single organization to provide a market place or facilities 

to bring together buyers and sellers of securities and meet the definition of an exchange, an 

exchange can also exist where a market place or facilities are provided by a group of persons, 

rather than a single organization.64  Under section 3(a)(1), and Exchange Act Rule 3b-16(a), the 

term exchange “means any organization, association, or group of persons, whether incorporated 

or unincorporated, which constitutes, maintains, or provides a market place or facilities for 

bringing together buyers and sellers of securities or perform with respect to securities the 

functions commonly performed by a stock exchange.”65  Thus, a group of persons, whether 

 
62  See id. 
63  See IOSCO Decentralization Finance Report at 8 n.13 (stating that “claims about decentralization for many 

projects may not hold up to scrutiny of the technical reality of what can be changed in the system, who can 
be involved in the decisions, and who actually is involved”).  

64  The term “person” means a natural person, company, government, or political subdivision, agency, or 
instrumentality of a government.  15 U.S.C. 78c(a)(9).  

65  In a recent decision, the United States Court of Appeals for the District of Columbia Circuit held that the 
term “group of persons” “certainly includes closely connected corporate affiliates” and noted that 
“[w]hether two or more persons are or may be acting in concert is likely the key consideration” in 
determining whether two or more entities may constitute a “group of persons” for purposes of the statute.  
Intercontinental Exch., Inc. v. SEC, 23 F.4th 1013, 1024 (D.C. Cir. 2022).  In addition, the court stated that 
it was “not suggest[ing] the term ‘group of persons’ is synonymous with corporate affiliation” and that 
“one corporation that is affiliated with but not controlled by another may or may not, depending upon the 

 



23 
 

incorporated or unincorporated, can together constitute, maintain, or provide a market place or 

facilities or perform with respect to securities the functions commonly performed by a stock 

exchange.  In determining which persons would be included in the group of persons that 

constitutes, maintains, or provides an exchange or performs with respect to securities the 

functions commonly performed by a stock exchange, important factors would generally include 

whether the persons act in concert in establishing, maintaining, or providing a market place or 

facilities for bringing together buyers and sellers of securities or in performing with respect to 

securities the functions commonly performed by a stock exchange, or exercise control, or share 

control, over aspects of such market place or facilities or the performance of functions 

commonly performed by a stock exchange.  In particular, when a group of persons exercises 

control, or shares control, over the organizational, financial, or operational aspects of a market 

place or facilities for bringing together buyers and sellers of securities, they are a group of 

persons that can be deemed to constitute, maintain, or provide the market place or facilities.66  

Whether persons act in concert or exercise control, or share control, requires an analysis 

of the activities of each person and the totality of facts and circumstances.  In assessing whether 

 
circumstances, be considered a ‘group of persons’” for the purposes of section 3(a)(1) of the Exchange Act.  
See id.  

66  In the Proposing Release, the Commission explained that, depending on the activities of the persons 
involved with the market place or facilities, a group of persons, who may each perform a function of the 
market place that meets the criteria of Exchange Act Rule 3b-16, can together provide, constitute, or 
maintain a market place or facilities for bringing together buyers and sellers of securities and together meet 
the definition of exchange.  See Proposing Release at 15506 n.109.  See also Regulation ATS Adopting 
Release at 70891 (“. . . any subsidiary or affiliate of a registered exchange could not integrate, or otherwise 
link the alternative trading system with the exchange, including using the premises or property of such 
exchange for effecting or reporting a transaction, without being considered a ‘facility of the 
exchange.’”).  In determining whether affiliated persons would be a “group of persons” for the purposes of 
section 3(a)(1) of the Exchange Act and Rule 3b-16 thereunder, an important factor is whether the 
operations and management of the affiliated persons are separate.  For example, an affiliated entity of an 
exchange might not be considered a group of persons with that exchange if there is independent 
governance, management, and oversight between affiliated entities; prevention of strategic coordination or 
information sharing between the affiliated entities by way of information barriers and other procedures; 
separation of functions relating to technology, operations and infrastructure, sales and marketing, branding, 
and staffing; and avoidance of business links, such as routing, fees, billing, and membership. 



24 
 

a person would be acting in concert with a group of persons, one factor to consider, depending 

on other facts and circumstances, would be the extent to which a person acts with an agreement 

(formal or informal) to constitute, maintain, or provide a market place or facilities for bringing 

together buyers and sellers of securities or to perform with respect to securities a function 

commonly performed by a stock exchange.  For example, if one entity agrees with another entity 

to combine aspects of each other’s market places or facilities (e.g., order books, display 

functionalities, or matching engines) to bring together buyers and sellers of securities, both 

entities could be considered part of the group and thus an exchange. 

Control could occur through several means, including, among other things, ownership 

interest, corporate organizational structure and management, significant financial interest, or the 

ability to determine or modify participant access, securities traded, operations or trading policies, 

or non-discretionary methods of the market place or facilities.  For example, a person that can 

determine or modify, either individually or with others, the entering, storing, matching, or 

display of trading interest (e.g., a matching engine, a smart contract) would be exercising control 

over the operations of the market place or facilities.  In addition, a person that can determine or 

modify, or grant or limit access to, for example, either individually or with others, the market or 

other data about the securities and securities transactions available on the market place or 

facility, order types, order interaction procedures (e.g., counterparty selection, segmentation), the 

priority or price at which trading interest will execute, or protocols for negotiation, would have 

the ability to determine trading policies or methods and exercise control over the market place or 

facilities.   



25 
 

The ability to exercise control over a market place or facilities is not limited solely to the 

operational control.67  Also, a person that, for example, either individually or with others, can 

determine or modify, with respect to the market place or facilities, the securities made available 

for trading or the access requirements and conditions for participation would be exercising 

control.  In addition, a person could exercise control by determining who can, and in what 

amount, share in profits or revenues derived from the market place or facilities, or by having the 

ability to enter into legal or financial agreements or arrangements on behalf of or in the name of 

the market place or facilities.  Depending on the facts and circumstances, significant holders of 

governance or other tokens, for example, could also be considered part of the group of persons 

and thus an exchange if they can control certain aspects of it.68   

Generally, an entity that engages a service provider or vendor to operate a market place 

or facilities for bringing together buyers and sellers of securities directs, manages, and oversees 

the activities of the service provider or vendor.  In this instance, the entity, not the service 

provider or vendor, controls the market place or facilities, and the entity is responsible for 

compliance with federal securities laws.  In certain circumstances, however, a service provider or 

vendor could exercise control, or share control, over aspects of the market place or facilities 

along with the entity that procured the service provider or vendor.  In that case, the service 

provider or vendor would be considered a person within a group of persons that constitutes, 

 
67  See, e.g., Regulation ATS Adopting Release at 78052 (stating that a system that standardizes the material 

terms of instruments traded on the system will be considered to use established, non-discretionary 
methods). 

68  This analysis would depend on facts and circumstances.  Whether a token holder can exercise control over 
a market place or facilities and be considered part of a “group of persons” would depend, for example, on 
the number of total token holders, or, if a holder’s votes are weighted proportionally to the size of their 
holdings of tokens, the size of their holdings, as well as what parameters the governance tokens are set to 
control (e.g., fundamental operational decisions, strategic direction of the company, budgetary decisions, 
and ability to change the underlying code), among other things.   



26 
 

maintains, or provides the market place or facilities for bringing together buyers and sellers of 

securities.69   

The group of persons that constitutes, maintains, or provides a market place or facilities 

for bringing together buyers and sellers of securities or performs with respect to securities the 

functions commonly performed by a stock exchange, and is thus an exchange, would collectively 

have the responsibility for compliance with federal securities laws.  A group of persons must 

consider how they will comply with the Exchange Act registration requirements given their 

activities, which can include, but are not limited to, designating a member of the group,70 to 

register the group or forming an organization to register as an exchange or, to operate as an ATS, 

registering as a broker-dealer and becoming a member of Financial Industry Regulatory 

Authority (“FINRA”) to ensure compliance with the requirements of the Exchange Act, 

Commission rules, and FINRA rules.71   

 
69  See Proposing Release at 15548.  This would not encompass purely administrative items, such as human 

resources support, or basic overhead items, such as phone services, electricity, and other utilities.  In the 
Proposing Release, the Commission recognized that an ATS may engage an entity other than the broker-
dealer operator to perform an operation or function of the ATS or a subscriber may be directed to use an 
entity to access a service of the ATS, such as order entry, disseminating market data, or display, for 
example.  See Proposing Release at 15548.  In such instances, the ATS must ensure that the entity 
performing the ATS function complies with Regulation ATS with respect to the ATS activities performed.  
See id. 

70  The group of persons would be collectively responsible for ensuring that the designated member of the 
group fulfills its regulatory responsibilities. 

71  An ATS that complies with Regulation ATS and registers as a broker-dealer would be required to, among 
other things, comply with the anti-money laundering and countering the financing of terrorism (AML/CFT) 
obligations under the Bank Secrecy Act.  31 CFR 1023.210; 31 CFR 1023.320.  The Bank Secrecy Act is 
codified at 31 U.S.C. 5311-5314; 5316-5332 and 12 U.S.C. 1829b, 1951-1959.  Additionally, sections 5(a) 
and 5(c) of the Securities Act of 1933 (“Securities Act”) generally prohibit any person, including broker-
dealers, from selling a security unless a registration statement is in effect or has been filed with the 
Commission as to the offer and sale of such security.  See 15 U.S.C. 77e(a) and (c).  A New Rule 3b-16(a) 
System that operates as an ATS, which is a registered broker-dealer, could be subject to liability under 
section 5 of the Securities Act for facilitating the sale of a security by its customer on the ATS if the sale of 
such security is not registered or an exemption from the registration provisions does not apply.  Section 
4(a)(4) of the Securities Act provides an exemption for “brokers’ transactions, executed upon customers’ 
orders on any exchange or in the over-the-counter market but not the solicitation of such orders.”  See 15 
U.S.C. 77d(a)(4).  To rely on this exemption, a broker-dealer is required to conduct a “reasonable inquiry” 
into the facts surrounding a proposed unregistered sale of securities before selling the securities to form 

 



27 
 

5. Group of Persons and So-Called “DeFi” Systems  

One commenter states users of what it characterizes as “DeFi” protocols should not be 

considered part of a group of persons as they act independently of each other.72  The commenter 

states that developers and users of “DeFi” protocols would not qualify as a “group of persons” 

because the developers have no ongoing relationship with either market participants or other 

financial providers and merely make tools available for parties to communicate, and users are 

acting independently of each other.73  Another commenter describes that the “DeFi protocols” 

deploying AMM functionality rely on many distinct groups or participants, which may not be 

“affiliated or extrinsically coordinated” with one another.74   

Trading on so-called “DeFi” systems can involve multiple actors.  These actors can 

include, for example, the provider(s) of the DeFi application or user interface, developers of 

AMMs or other DLT code, decentralized autonomous organizations (“DAO”), validators or 

miners,75 and issuers or holders of governance or other tokens.  Often, a single organization 

constitutes, maintains, or provides a DLT-based market place or facilities for bringing together 

buyers and sellers of securities or performs with respect to securities the functions commonly 

performed by a stock exchange; however, a group of persons can likewise do so.  As indicated 

 
reasonable grounds for believing that a selling customer’s part of the transaction is exempt from section 5 
of the Securities Act.  The Commission has stated that broker-dealers “have a responsibility to be aware of 
the requirements necessary to establish an exemption from the registration requirements of the Securities 
Act and should be reasonably certain such an exemption is available.”  In the Matter of World Trade 
Financial Corp., Securities Exchange Act Release No. 66114, 13 (Jan. 6, 2012) (quoting Stone Summers & 
Co., Securities Exchange Act Release No. 9839, 3 (Nov. 3, 1972)).    

72  See DeFi Education Fund Letter at 15.  
73  See id. 
74  See Delphi Digital Letter at 9 (describing that “[t]hey do not co-own assets or operate a single enterprise 

for profit, do not know each other’s identities, and have diverse (and often competing) motivations”). 
75  Validators and miners verify transactions on the underlying blockchain and the function they perform is not 

only with respect to a particular trading system.  Validators and miners use a consensus mechanism (e.g., 
proof-of-stake or proof-of-work) to verify and add transactions to a distributed ledger in exchange for 
crypto assets.  See Crypto-Assets Treasury Report at 11-12.   



28 
 

above, one possible avenue for determining which persons comprise a group of persons can 

include whether such persons act in concert to establish, provide, or maintain a market place or 

facilities for securities or to perform with respect to securities the functions commonly 

performed by a stock exchange, or exercise control, or share control, over aspects of the market 

place or facilities or the performance of functions commonly performed by a stock exchange.76  

These actors can form a group of persons if they act in concert to perform, or exercise control or 

share control over, different functions of a market place or facilities for bringing together buyers 

and sellers of securities that, taken together, satisfy the elements of existing Exchange Act Rule 

3b-16(a) or Rule 3b-16(a), as proposed to be amended.   

As discussed above, in assessing whether a person would be acting in concert with a 

group of persons, one factor to consider, depending on other facts and circumstances, would be 

the extent to which a person acts with an agreement (formal or informal) to perform a function of 

a market place or facilities for bringing together buyers and sellers of securities.77  A software 

developer who, acting independently and separate from an organization, publishes or republishes 

code without any agreement (formal or informal) with any person for that code to be used for a 

function of a market place or facilities for bringing together buyers and sellers of securities may 

be less likely to be acting in concert to provide a market place or facilities for bringing together 

buyers and sellers.78  This could be the case even if the software developer’s code is 

 
76  See supra note 66. 
77  See supra section II.B.4. 
78  See, e.g., LeXpunK Letter at 15 (requesting that the Commission clarify that persons who “write and 

publish smart contract code as a hobby or business, whether to an open-source repository otherwise, and 
may not otherwise be subject to the jurisdiction of the U.S.” are not intended to be captured by the 
Proposed Rules).  If a software developer receives compensation for publishing, independently from an 
organization, code for a trading facility to match orders or a protocol for buyers and sellers to negotiate a 
trade, the software developer could be acting in concert with a group of persons to provide a market place 
or facilities for bringing together buyers and sellers. 



29 
 

subsequently adopted and implemented into a market place or facilities for securities by an 

unrelated person.  Whether the activities of actors amount to a group of persons requires an 

analysis of the totality of facts and circumstances and the activities of each actor.  If the activities 

of any combination of actors constitute, maintain, or provide, together, a market place or 

facilities for bringing together buyers and sellers for securities or perform with respect to 

securities a function commonly performed by a stock exchange, they could today be considered a 

group of persons and thus an exchange under section 3(a)(1) of the Exchange Act and Rule 3b-

16 thereunder and therefore be required to register as an exchange under section 5 of the 

Exchange Act.79   

One commenter states that attributing the function of constituting, maintaining, or 

providing an exchange to persons who initially created or deployed the system’s code may not be 

practicable or advance the Commission’s policy objectives because according to the commenter, 

the system, once deployed, typically cannot be significantly altered or controlled by any such 

persons.80  A smart contract deployed to, and run on, a blockchain is typically accompanied by 

other functionality to bring together buyers and sellers of securities (e.g., a user interface or 

 
79  See, e.g., Regulation ATS Adopting Release at 70852 (“[I]f an organization arranges for separate entities to 

provide different pieces of a trading system, which together meet the definition contained in paragraph (a) 
of Rule 3b-16, the organization responsible for arranging the collective efforts will be deemed to have 
established a trading facility.”).  See also Proposing Release at 15506 (stating the proposed change to use 
the phrase “makes available” is intended to make clear that, in the event that a party other than the 
organization, association, or group of persons performs a function of the exchange, the function performed 
by that party would still be captured for purposes of determining the scope of the exchange under Exchange 
Act Rule 3b-16).  The Proposing Release also stated that, “[d]epending on the activities of the persons 
involved with the market place, a group of persons, who may each perform a part of the 3b-16 system, can 
together provide, constitute, or maintain a market place or facilities for bringing together purchasers and 
sellers of securities and together meet the definition of exchange.  In such a case, the group of persons 
would have the regulatory responsibility for the exchange.”  See id. at 15506 n.109.  See also infra notes 
101-103 and accompanying text. 

80  See Coinbase Letter at 6.  Likewise, some commenters state that software developers cannot modify or 
control the code they have developed after it is launched.  See Delphi Digital Letter at 8-9; Blockchain 
Association/DeFi Education Fund Letter at 5; DeFi Education Fund Letter at 11; Stinson Letter; Letter 
from Roman Scher, dated Apr. 18, 2022. 



30 
 

website), and these functionalities can be provided and maintained by more than one party.  If, 

for example, an organization deploys a smart contract that the organization cannot significantly 

alter or control but constitutes a market place for securities under existing Exchange Act Rule 

3b-16 or Rule 3b-16, as proposed to be amended, then that organization would be an exchange 

and would be responsible for compliance with federal securities laws for that market place.81  

Given that such a market place could be publicly available to bring together buyers and sellers of 

securities, requiring the organization to be responsible in this case would advance the 

Commission’s policy objectives by ensuring the exchange complies with federal securities laws 

and regulations, including, among other things, the oversight, investor protection, and fair and 

orderly market principles applicable to registered exchanges and ATSs.   

6. Feasibility of Compliance with Exchange Regulatory Requirements 

Some commenters state that so-called “DeFi” trading systems may have difficulty 

complying with certain exchange regulatory requirements.82  For example, one commenter states 

it is unclear that any party would have the necessary information to comply with Regulation 

ATS.83  In addition, some commenters question how DeFi trading systems would comply with 

broker-dealer requirements.84   

 
81  See also supra 78 and accompanying text (discussing “group of persons” involving a software developer 

acting independently and separate from an organization).   
82  See, e.g., a16z Letter at 3; CoinList Letter at 2; GDCA Letter II at 8, 10. 
83  See a16z Letter at 15 (stating that there is no central operator of a DeFi exchange that could complete Form 

ATS or comply with periodic reporting requirements and that those who make available AMMs cannot 
identify, track the orders of, or report to the Commission information about users).   

84  See, e.g., GDCA Letter II at 8; Blockchain Association Letter II at 8; Letter from Lilya Tessler, Founder 
and Co-Chair, Digital Asset Regulatory & Legal Alliance, Kristin Boggiano, Founder and Co-Chair, 
Digital Asset Regulatory & Legal Alliance, Lee Schneider, Co-Founder, Global Blockchain Convergence, 
Cathy Yoon, Co-Founder, Global Blockchain Convergence, Renata Szkoda, Chairwoman, Global Digital 
Asset & Cryptocurrency Association, dated Apr. 14, 2022 (“DARLA, GBC, and Global DCA Letter”) at 9. 



31 
 

The investor protection, fair and orderly markets, transparency, and oversight benefits of 

the federal securities laws are just as relevant to a system that uses DLT and meets the existing 

criteria of Exchange Act Rule 3b-16 and Rule 3b-16, as proposed to be amended, as to any other 

system that meets the criteria under the exchange definition.  From the Commission’s 

experience, systems that currently are registered as national securities exchanges or comply with 

the conditions of Regulation ATS differ with respect to structure, participants, and established, 

non-discretionary methods and apply many assorted technologies to bring together buyers and 

sellers of various types of securities.  The federal securities laws apply equally to systems that 

trade securities, use DLT, and meet the criteria of Rule 3b-16 as to any other exchange.  The 

federal securities laws are flexible and the use of DLT, or any other technology, does not make 

compliance incompatible with the federal securities laws.85   

One commenter states that “many Communication Protocol Systems are neither ‘brokers’ 

nor ‘dealers’ as defined by the Exchange Act because they do not effect securities transactions,” 

which the commenter equates to “order execution,” and “do not engage in the business of buying 

and selling securities.”86  The commenter states accordingly that the option to qualify as an ATS 

is not available for Communication Protocol Systems under current law, as only a registered 

broker-dealer may qualify as an ATS.87   

 
85  See DAO 21(a) Report (stating that “the automation of certain functions through [distributed ledger or 

blockchain] technology ‘smart contracts,’ or computer code, does not remove conduct from the purview of 
the U.S. federal securities laws” and that the requirements of the U.S. federal securities laws “apply to 
those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional 
company or a decentralized autonomous organization, regardless whether those securities are purchased 
using U.S. dollars or virtual currencies and regardless whether they are distributed in certificated form or 
through distributed ledger technology”). 

86  See GDCA Letter II at 11-13.   
87  See id. 



32 
 

Regulation ATS establishes a regulatory framework for ATSs.  An ATS meets the 

definition of “exchange” under existing Exchange Act Rule 3b-16(a) and Exchange Act Rule 3b-

16(a), as proposed to be amended, but is not required to register as a national securities exchange 

if the ATS complies with the conditions of Regulation ATS, which include registering as a 

broker-dealer.  Section 3(a)(4)(A) of the Exchange Act defines “broker” as “any person engaged 

in the business of effecting transactions in securities for the accounts of others.”88  The question 

of whether a person is a broker within the meaning of section 3(a)(4) turns on the facts and 

circumstances of the matter.  Under section 3(a)(4)(A), the terms “engaged in the business” and 

“effecting transactions” are not defined by statute; however, effecting transactions in securities 

includes more than just executing trades or forwarding securities orders to a broker-dealer for 

execution.89  In particular, the Commission stated that effecting securities transactions can 

include participating in the transactions through routing or matching orders, or facilitating the 

execution of a securities transaction.90  In addition, courts have stated that a person may be found 

to be acting as a “broker” if the person participates in securities transactions “at key points in the 

 
88  15 U.S.C. 78c(a)(4)(A).  Section 3(a)(5)(A) defines “dealer” as any person engaged in the business of 

buying and selling securities, with certain exceptions, for such person’s own account through a broker or 
otherwise.  15 U.S.C. 78c(a)(5)(A).   

89  See Securities Exchange Act Release No. 44291 (May 11, 2001), 66 FR 27760, 27772-73 (May 18, 2001) 
(stating that effecting securities transactions can include participating in the transactions through (1) 
identifying potential purchasers of securities; (2) screening potential participants in a transaction for 
creditworthiness; (3) soliciting securities transactions; (4) routing or matching orders, or facilitating the 
execution of a securities transaction; (5) handling customer funds and securities; and (6) preparing and 
sending transaction confirmations (other than on behalf of a broker-dealer that executes the trades).  
Further, the Commission stated in the Regulation ATS Adopting Release that a trading system that falls 
within the Commission’s interpretation of “exchange” in Rule 3b-16 will still be considered an “exchange” 
even if it matches two trades and routes them to another system or exchange for execution and that whether 
or not the actual execution of the order takes place on the system is not a determining factor of whether the 
system falls under Exchange Act Rule 3b-16.  See Regulation ATS Adopting Release at 70852. 

90  See Securities Exchange Act Release No. 44291 (May 11, 2001), 66 FR 27760, 27772-73 (May 18, 2001). 



33 
 

chain of distribution.”91  Accordingly, the Commission believes that a New Rule 3b-16(a) 

System that seeks to operate as an ATS could register as a broker-dealer. 

 Given that the Proposing Release applies to New Rule 3b-16(a) Systems that use DLT, 

the Commission seeks responses to the following questions: 

4. Which, if any, activities performed on so-called “DeFi” trading systems meet the 

criteria of Rule 3b-16(a), as proposed to be amended?  For example, does the use of 

AMMs alone bring together multiple buyers and sellers of securities through the use 

of non-firm trading interest?  Please explain.  Please identify any relevant data, 

literature, or other information that could assist the Commission in analyzing this 

issue. 

5. Please give examples of New Rule 3b-16(a) Systems for crypto asset securities that 

use DLT or are so-called “DeFi” systems.  Approximately how many such systems 

exist?  Please identify the types of non-firm trading interest used and how participants 

use non-firm trading interest on such systems.  Please explain what these systems 

trade (crypto asset securities or crypto assets) and the type of participants (e.g., retail 

or institutional).  How do participants on a New Rule 3b-16(a) System for crypto 

asset securities that use “DeFi” systems, as characterized by commenters, negotiate 

trades for crypto asset securities?  Please identify any relevant data, literature, or 

other information that could assist the Commission in analyzing these issues.   

 
91  See Mass. Fin. Serv., Inc. v. Sec. Inv. Prot. Corp., 411 F. Supp. 411, 415 (D. Mass. 1976), aff’d 545 F.2d 

754 (1st Cir. 1976).  See also SEC v. Nat’l Exec. Planners, Ltd., 503 F. Supp. 1066, 1073 (M.D.N.C. 1980).  
Courts have also stated that in determining whether a person has acted as a broker, several factors are 
considered, including “whether the person: (1) actively solicited investors; (2) advised investors as to the 
merits of an investment; (3) acted with a ‘certain regularity of participation in securities transactions;’ and 
(4) received commissions or transaction-based remuneration.”  See, e.g., SEC v. U.S. Pension Trust Corp., 
2010 WL 3894082, *20-21 (S.D. Fla. 2010). 



34 
 

6. Would an organization, association, or group of persons that is a New Rule 3b-16(a) 

System and uses DLT to trade crypto asset securities likely elect to register as a 

national securities exchange or comply with the conditions of Regulation ATS?   

Please explain. 

7. What are common characteristics of New Rule 3b-16(a) Systems for crypto asset 

securities that use DLT?  Further, what are common characteristics of New Rule 3b-

16(a) Systems for crypto asset securities described as “DeFi” trading systems?  Are 

there any characteristics that heighten the need for investor protection and market 

integrity under the exchange regulatory framework?   

8. What are the various governance structures (e.g., the role of governance token issuers 

or holders or of DAOs) of trading systems that use DLT and how can such structures 

administer regulatory programs or respond to regulatory oversight regarding activities 

on the system?  What activities do governance token issuers or holders or DAOs 

undertake regarding the governance and operation of trading systems that use DLT?  

Is there any concentration in voting and if so, how does that arise?  Are voting rights 

of governance tokens or DAOs capable of being assigned or delegated and, if so, how 

is that done?  How are changes to trading systems that use DLT effected and how are 

changes proposed to holders of voting rights under governance tokens or DAOs?  

Under what circumstances should governance or other token issuers or holders or 

DAOs be responsible for an exchange’s regulatory compliance? 

9. As noted in the above requests for comment in this section, the Commission seeks 

additional data and other information about the use of DLT as it relates to New Rule 

3b-16(a) Systems.  Please provide any such data, literature, or other information 



35 
 

about the topics noted above or any other issue that would be relevant to the 

Commission’s analysis of the Proposed Rules. 

III. Proposed Amendments to Exchange Act Rule 3b-16 Generally 

A. Performs Functions Commonly Performed by a Stock Exchange 

Some commenters state that the Proposing Release did not demonstrate that systems that 

offer the use of non-firm trading interest and provide non-discretionary protocols “perform[] 

with respect to securities the functions commonly performed by a stock exchange as that term is 

generally understood,” and assert that such a finding is required under the statutory definition of 

“exchange” under section 3(a)(1) of the Exchange Act.92  In addition, some commenters state 

that systems that offer the use of non-firm trading interest and provide non-discretionary 

protocols to bring together buyers and sellers of securities do not perform functions commonly 

performed by a stock exchange, as that term is generally understood.93   

The statutory definition of “exchange” is written in the disjunctive: “a market place or 

facilities for bringing together purchasers and sellers of securities or for otherwise performing 

with respect to securities the functions commonly performed by a stock exchange as that term is 

generally understood” (emphasis added).94  Thus, if an organization, association, or group of 

 
92  See, e.g., ConsenSys Letter at 14-15; DeFi Education Letter at 13; Coinbase Letter at 3 n.9.  One of the 

commenters also states that in the Regulation ATS Adopting Release, the Commission assumed that to 
meet the statutory definition, the system must be “generally understood” to be performing stock exchange 
functions and “anchored” that rulemaking explicitly within the statutory definition.  See Coinbase Letter at 
3 n.10.  In addition, a commenter opines that “[m]erely indicating a possible interest in buying or selling a 
security without mentioning the quantity or pricing terms that would otherwise characterize an order would 
allow the Commission to deem a platform an exchange despite it not ‘performing with respect to securities 
the functions commonly performed by a stock exchange.’”  Blockchain Association Letter II at 4. 

93  See, e.g., Coinbase Letter at 3; ConsenSys Letter at 13-14; DARLA, GBC, and Global DCA Letter at 3-6; 
Letter from Gregory Babyak, Global Head of Regulatory Affairs and Gary Stone, Regulatory Analyst and 
Market Structure Strategist, Bloomberg L.P., dated Apr. 18, 2022 (“Bloomberg Letter I”) at 22. 

94  See 15 U.S.C. 78c(a)(1); Regulation ATS Adopting Release at 70900 n.544 (stating “the statutory 
definition of ‘exchange’ is written in the disjunctive”).  Section 3(a)(1) of the Exchange Act states that an 
“exchange” includes any organization, association, or group of persons that constitutes, maintains, or 

 



36 
 

persons constitutes, maintains, or provides a market place or facilities for bringing together 

purchasers and sellers of securities, it would be an “exchange”; it need not be demonstrated that 

the organization, association, or group of persons also performs functions commonly performed 

by a stock exchange as that term is generally understood.  As discussed in the Proposing Release, 

systems today that offer the use of non-firm trading interest and provide non-discretionary 

protocols can constitute, maintain, or provide a market place or facilities for bringing together 

buyers and sellers of securities and meet the criteria of Exchange Act 3b-16 as proposed to be 

amended.95   

B. Makes Available Non-Discretionary Methods 

In the Proposing Release, the Commission proposed to amend Exchange Act Rule 3b-

16(a) to provide that an organization, association, or group of persons would be considered to 

constitute, maintain, or provide an exchange if it: brings together buyers and sellers of securities 

using trading interest; and makes available established, non-discretionary methods (whether by 

providing a trading facility or communication protocols, or by setting rules) under which buyers 

and sellers can interact and agree to the terms of a trade.  The Commission proposed, among 

other changes, to replace the term “uses” with the term “makes available” in 17 CFR 240.3b-

16(a)(2) (“Rule 3b-16(a)(2)”),96 and to add “communication protocols” as an example of an 

established, non-discretionary method that an organization, association, or group of persons can 

 
provides a market place or facilities for bringing together purchasers and sellers of securities or for 
otherwise performing with respect to securities the functions commonly performed by a stock exchange as 
that term is generally understood.  Functions commonly performed by a stock exchange as that term is 
generally understood include, among other things, SRO functions and the listing of securities, by, for 
example, establishing or enforcing qualitative or quantitative listing standards.  See Regulation ATS 
Adopting Release at 70880 (stating that “[r]egistered exchanges are able to establish listing standards, 
which may promote investor confidence in the quality of the securities traded on the exchange”). 

95  See Proposing Release at section II.C.  
96  See id. at 15506. 



37 
 

provide to bring together buyers and sellers of securities.97  The Commission received comment 

on the application of these proposed changes to all securities, including comments requesting the 

Commission to provide further consideration and opportunity for comments before adopting the 

proposed changes.98  The Commission is now soliciting further comment on certain Proposed 

Rules. 

In the Proposing Release, the Commission discussed two reasons it proposed to replace 

“uses established, non-discretionary methods” with the phrase “makes available established, non-

discretionary methods.”  First, the Commission stated that the proposed change to use the term 

“makes available” rather than “uses” is designed to capture established, non-discretionary 

methods that an organization, association, or group of persons may provide, whether directly or 

indirectly, for buyers and sellers to interact and agree upon terms of a trade.99  Unlike systems 

that “use” established non-discretionary methods to match buyers and sellers, communication 

protocols systems offer a different method for bringing together buyers and sellers by providing 

protocols that allow participants to interact, negotiate, and come to an agreement.100   

Second, the term “makes available” was intended to make clear that, in the event that a 

party other than the organization, association, or group of persons performs a function of the 

exchange, the function performed by that party would still be captured for purposes of 

determining the scope of the exchange under Exchange Act Rule 3b-16.101  The Commission has 

previously stated that it will attribute the activities of a trading facility to a system if that facility 

 
97  See id. at 15506-07. 
98  See Bloomberg Letter I at 13-15; SIFMA Letter II at 7. 
99  See Proposing Release at 15506. 
100  See id. 
101  See id. 



38 
 

is offered by the system directly or indirectly (such as where a system arranges for a third party 

or parties to offer the trading facility).102  The Commission also recognized how a system may 

consist of various functionalities, mechanisms, or protocols that operate collectively to bring 

together the orders for securities of multiple buyers and sellers using non-discretionary methods 

under the criteria of Rule 3b-16(a), and how, in some circumstances, these various 

functionalities, mechanisms, or protocols may be offered or performed by another business unit 

of the broker-dealer operator or by a separate entity.103  The Commission stated that these 

principles apply equally to an organization, association, or group of persons that arranged with 

another party to provide, for example, a trading facility or communication protocols, or parts 

thereof, to bring together buyers and sellers and perform a function of a system under Rule 3b-

16.104  Consistent with the principles in the Regulation ATS Adopting Release, the term “makes 

available” would help ensure that the investor protection and fair and orderly markets provisions 

of the exchange regulatory framework apply to the activities performed through all 

functionalities, mechanisms, or protocols of a market place that meet the criteria of Rule 3b-

16(a), notwithstanding whether those activities are performed by a party other than the 

organization that provides the market place.105   

Commenters state that the proposed use of the term “makes available” would extend the 

scope of the exchange definition to a broad set of entities that provide services to a system and its 

participants and potentially create uncertainty and ambiguity.106  One commenter states that the 

 
102  See id. (citing Regulation ATS Adopting Release at 70852). 
103  See id. 
104  See id. 
105  See id.  See also Regulation ATS Adopting Release at 70851-52. 
106  See, e.g., Letter from Gregory Babyak and Gary Stone, Regulatory Affairs, Bloomberg L.P., dated Sept. 

16, 2022 (“Bloomberg Letter II”) at 2; Letter from Elisabeth Kirby, Head of U.S. Market Structure, 
 



39 
 

Proposing Release opens up the possibility that systems interacting with the ATS are themselves 

separate exchanges and questions when two or more unrelated entities might be viewed as 

collectively providing the services of an exchange.107  One commenter expresses concern that the 

Proposed Rules would broaden the definition of “exchange” to include entities that do not 

themselves take an active role in matching orders but instead contribute in some manner to the 

efforts of buyers and sellers to identify each other and arrange trades, and that anyone who 

contributes to the existence of trading protocols could be considered to make them available.108  

Another commenter states that the Proposed Rules do not address “open-architecture platforms 

that integrate with or embed in a third-party application” and asks whether such activity would 

constitute making available communication protocols.109  One commenter states that the 

proposed term “makes available” would expand the groups of persons subject to the Exchange 

Act to include those who expressly do not fall under the statutory language of section 3(a)(1)—

“a party other than the organization, association, or group of persons” that performs a function 

on the exchange.110  In addition, one commenter states the definition should only include entities 

that make available systems “with the intent to profit from trades to which they are not a party” 

 
Tradeweb Markets, Inc., dated Apr. 18, 2022 (“Tradeweb Letter”) at 5; Letter from Ken McGuire, 
President, Aditum Alternatives & Aditum Asset Management, dated Feb. 21, 2022 (“Aditum Letter”) at 2; 
Letter from Gene Hoffman, President & Chief Operating Officer, Chia Network, dated Apr. 16, 2022 
(“Chia Network Letter”) at 4-7; DARLA, GBC, and Global DCA Letter at 6-7; ConsenSys Letter at 13, 16-
17; Blockchain Association Letter II at 8-9; ADAM Letter II at 8, 16; Eisenbach Letter at 2. 

107  See SIFMA Letter II at 9 n.23. 
108  See ConsenSys Letter at 16-17.  See also DeFi Education Fund Letter at 9-10 (stating that “systems 

providing communication and other financial technology adjacent to trading, such as bespoke direct 
messaging or market information services, could be captured under the overbroad ‘makes available’ 
standard”). 

109  See Letter from Corinna Mitchell, General Counsel, Symphony Communication Services, dated Apr. 18, 
2022 at 4.  See also DeFi Education Fund Letter at 9-10 (stating the “makes available” language could 
subject software developers to exchange regulation “solely on the basis of having lines of their code 
subsequently used by unrelated parties”); Tradeweb Letter at 5 (stating that the proposed language might 
affect various forms of software tools widely used in the securities industry). 

110  See Blockchain Association Letter II at 4-5 (quoting the Proposing Release at 15506). 



40 
 

and exclude those that integrate software available in the public domain and perform the role 

without a profit motive.111   

Request for Comment 

10. In the Regulation ATS Adopting Release, the Commission stated that it would 

“attribute the activities of a trading facility to a system if that facility is offered by the 

system directly or indirectly (such as where a system arranges for a third party or 

parties to offer the trading facility).”112  In explaining the term “makes available” in 

the Proposing Release, the Commission stated that it was “designed to capture 

established, non-discretionary methods that an organization, association or groups of 

person may provide, whether directly or indirectly.”113  To ensure that an exchange 

function performed by a party is appropriately captured under Exchange Act Rule 3b-

16, should the Commission adopt alternative language to “makes available”?  Please 

explain.  For example, should the Commission adopt “Uses established, non-

discretionary methods (whether by providing, directly or indirectly, a trading 

facility…)”?  Would the addition of the phrase “directly or indirectly” align Rule 3b-

16 more closely with prior Commission statements in the Regulation ATS Adopting 

Release114 and focus the rule text on a function that a party performs in the provision 

of an established, non-discretionary method to bring together buyers and sellers?  

Would the phrase “directly or indirectly” reduce commenters’ concerns about the 

proposed “makes available” language being overbroad?  Why or why not?  What, if 

 
111  See Aditum Letter at 2. 
112  See Regulation ATS Adopting Release at 70852. 
113  See Proposing Release at 15506.  
114  See id. (citing Regulation ATS Adopting Release at 70852).41 
 

any, limiting principles should be applied to determining when a person provides 

“directly or indirectly” a trading facility or communication protocols (or “negotiation 

protocols”)?115  Please explain. 

11. The Commission proposed to remove the term “uses” and insert the term “makes 

available” before “established, non-discretionary methods” because the Commission 

proposed to include as an established, non-discretionary method communication 

protocols under which buyers and sellers can interact and agree to the terms of a 

trade.  Communication protocols would be in addition to a trading facility, which is 

an existing established, non-discretionary method under existing Exchange Act Rule 

3b-16(a)(2) and is used by the provider of the exchange to match buyers and sellers.  

Instead of the terms “uses” and “makes available,” should the Commission adopt 

amendments to Exchange Act Rule 3b-16(a)(2) that state “[E]stablishes non-

discretionary methods (whether by providing, directly or indirectly, a trading facility 

or…)”?  The addition of the term “establishes” would adhere to the concept of 

“established” in existing Exchange Act Rule 3b-16(a)(2) and be consistent with the 

Commission’s explanation in the Regulation ATS Adopting Release that the person 

who establishes non-discretionary methods is dictating the terms of trading among 

buyers and sellers on the system.116  For example, an organization that establishes a 

non-discretionary method would be providing a trading facility or providing 

communication protocols (or “negotiation protocols”117) or setting rules for buyers 

and sellers to interact and agree upon the terms of a trade.   

 
115  See infra Request for Comment #13. 
116  See Regulation ATS Adopting Release at 70850. 
117  See infra Request for Comment #13.  



42 
 

C. Non-Discretionary Method: Communication Protocols 

In the Proposed Rules, the Commission proposed to add “communication protocols” to 

Exchange Act Rule 3b-16(a) as a non-discretionary method that an organization, association, or 

group of persons could provide for buyers and sellers to interact and agree upon the terms of a 

trade.118  In the Proposing Release, the Commission explained that communication protocols, 

which can be applied to various technologies and connectivity, are provided along with the use 

of non-firm trading interest (as opposed to firm orders) to prompt and guide buyers and sellers to 

communicate, negotiate, and agree to the terms of the trade.119  The Commission also provided 

examples of trading systems that function as market places or facilities for securities by 

providing communication protocols.120  The Commission provided an example of an entity 

making available a chat feature that has the additional requirement that certain information be 

included in a chat message (e.g., price, quantity) and also setting parameters and structure 

designed for participants to communicate about buying or selling securities as a system that 

would have established communication protocols.121  The Commission also explained what 

would not be a communication protocol system for purposes of the Proposed Rules.122   

The Commission received comment that the term “communication protocol” is too broad 

and vague and that it is unclear what activities or entities would be classified as communication 

 
118  See Proposing Release at 15507. 
119  Id. 
120  See id. at 15500-01.  These trading systems could include, among others, RFQ systems, stream axes, 

conditional order systems, and bilateral negotiation systems. 
121  See id. at 15507. 
122  See, e.g., id.  For example, the Commission stated that it did not intend for communication protocols to 

include systems that only provide the connectivity or technology that allows buyers and sellers to 
communicate (such as utilities or providers of stand-alone electronic web chat) without also establishing 
non-discretionary methods that govern how the communications are allowed to proceed as participants 
agree to the terms of a trade.  See id. 



43 
 

protocol systems.123  Commenters suggest that the Commission should define the term 

“communication protocol system” to avoid uncertainty as to who is included or not included 

under its scope.124  Commenters state that the broad concept of a communication protocol system 

could capture various types of technologies used by market places for securities, including, for 

example, front-end graphical user interfaces (“GUIs”), web chat providers,125 primary market 

communication systems,126 software solutions,127 or trading desks of a broker-dealer.128  

Commenters state that the uncertainty could give the impression that employing the term 

expands the scope of exchange regulation to all communication methods.129   

Request for Comment 

12. In existing Exchange Act Rule 3b-16(a)(2), non-discretionary methods include 

providing a trading facility or setting rules governing the interaction of orders.  

“Trading facility” and “setting rules” are not defined in the rule text but are explained 

in the Regulation ATS Adopting Release and the Commission provided examples of 

 
123  See, e.g., Letter from Lindsey Weber Keljo, Head of Asset Management Group, William C. Thum, 

Managing Director and Assistant General Counsel, Securities Industry and Financial Market Association, 
dated Apr. 18, 2022 (“SIFMA AMG Letter”) at 6; Letter from Charles V. Callan, Broadridge Financial 
Solutions, Inc., dated Apr. 18, 2022 (“Broadridge Letter”) at 2; Letter from Douglas A. Cifu, Chief 
Executive Officer, Virtu Financial, Inc., dated Apr. 18, 2022 (“Virtu Letter”) at 11; Letter from Jennifer W. 
Han, Managed Funds Association, dated Apr. 18, 2022 (“MFA Letter”) at 7-10; Letter from David R. 
Burton, Senior Fellow in Economic Policy, The Heritage Foundation, dated Apr. 18, 2022 (“Burton 
Letter”) at 2.   

124  See, e.g., Healthy Markets Letter at 6; Letter from Scott Pintoff, General Counsel, MarketAxess, dated Apr. 
18, 2022 (“MarketAxess Letter”) at 5; Broadridge Letter at 2; Virtu Letter at 11.  Another commenter, in 
expressing concern about the scope of the Proposed Rules, describes that the Proposed Rules did not define 
“communication protocol system.”  See McHenry/Huizenga Letter at 2. 

125  See, e.g., GDCA Letter II at 9; Coin Center Letter at 19-20.  
126  See Letter from Scott Eisenberg, Head of Legal, DirectBooks LLC, dated Apr. 18, 2022.   
127  See SIFMA Letter II at 9. 
128  See Letter from Christopher A. Iacovella, Chief Executive Officer, American Securities Association, dated 

Apr. 18, 2022 (“ASA Letter”) at 3. 
129  See, e.g., Bloomberg Letter I at 19; Chia Network Letter at 2 (stating that “the Commission’s proposed 

amendments [put] the entire Internet and connectivity businesses in jeopardy of tripping over the 
[Exchange Act]”).   



44 
 

each.130  The Commission proposed “communication protocols” as another non-

discretionary method for trading interest in the Proposing Release.  Should the 

Commission adopt Exchange Act Rule 3b-16(a)(2), as proposed to be amended, to 

include “communication protocols” as an example of a non-discretionary method 

under which buyers and sellers can interact and agree to the terms of a trade?  Why or 

why not?  In addition to the guidance provided in the Regulation ATS Adopting 

Release, should the Commission provide guidance on what “non-discretionary 

methods” means under Exchange Act Rule 3b-16?   

13. To reflect systems that provide non-discretionary methods under which buyers and 

sellers negotiate terms of a trade, should the Commission adopt amendments to 

Exchange Act Rule 3b-16(a)(2) that replace the proposed term “communication 

protocols” with the term “negotiation protocols” and adopt the following definition 

under a new Rule 3b-16(f):   

For purposes of this section, the term “negotiation protocols” means a non-

discretionary method that sets requirements or limitations designed for multiple 

buyers and sellers of securities using trading interest to interact and negotiate 

terms of a trade. 

14. As discussed above, some commenters state that the term “communication protocol” 

is too broad and vague and that it is unclear what activities or entities would be 

classified as communication protocol systems.131  The term “negotiation protocols” 

 
130  See Regulation ATS Adopting Release at 70851-52.  The Regulation ATS Adopting Release stated that the 

Commission intended for “‘established, non-discretionary methods’ to include any methods that dictate the 
terms of trading among the multiple buyers and sellers entering orders into the system.”  Id. at 70850. 

131  See supra note 123.    



45 
 

could better focus the non-discretionary methods that the Commission intended to 

capture in the proposed amendments to Exchange Act 3b-16(a)(2) than the term 

“communication protocols.”  The term “negotiation protocols” would be another 

example, in addition to directly or indirectly providing a trading facility or setting 

rules, of a non-discretionary method established by an exchange under which buyers 

and sellers can negotiate and agree to the terms of a trade.  What are commenters’ 

views of the term “negotiation protocols”?  Are there any terms that should be added, 

deleted, or modified in the definition of “negotiation protocol” to make the definition 

more precise or appropriate?  Are there other non-discretionary methods under which 

buyers and sellers can interact and agree to the terms of a trade that the Commission 

should add to Rule 3b-16(a)(2)?  If so, please explain.  What other types of protocols 

under which buyers and sellers can interact and agree to the terms of a trade exist or 

can be provided?     

15. The definition of “negotiation protocols” described above would set requirements or 

limitations designed to govern how the trading interest is used by participants to 

interact and negotiate a trade.  Should a definition of “negotiation protocols” specify 

both requirements and limitations that would constitute a non-discretionary method?  

Why or why not?     

16. As an alternative to adopting a definition of “negotiation protocols” in the rule text, 

should the Commission provide an explanation and examples of what negotiation 

protocols are and are not in any adopting release, similar to what the Commission did 

in the Regulation ATS Adopting Release when analyzing the application of Rule 3b-



46 
 

16 to hypothetical Systems A through T?132  In the Proposing Release, the 

Commission provided examples of trading systems that offer the use of non-firm 

trading interest and established protocols that would meet the criteria of Exchange 

Act 3b-16, as proposed to be amended (e.g., RFQ, conditional order systems, 

indication of interest systems).133  Should the Commission adopt those examples as 

hypotheticals that would meet the criteria of Rule 3b-16 similar to the hypotheticals 

in the Regulation ATS Adopting Release?  Please explain.  Should the examples that 

the Commission provided in the Proposing Release change in any way?  Are there 

any other examples that the Commission should adopt to describe New Rule 3b-16(a) 

Systems?  Please describe any such examples.   

17. As discussed above, whether an organization, association, or group of persons meets 

the definition of an exchange depends on the activities performed and not the 

technology used.  The Commission received comments requesting the Commission 

clarify that order management systems, order execution systems, and order execution 

management systems (collectively referred to as “OEMS” technology) do not meet 

the criteria of Rule 3b-16, as proposed to be amended.134  The Commission 

 
132  See Regulation ATS Adopting Release at 70854-56. 
133  See Proposing Release at 15500-01. 
134  See Bloomberg Letter I at 16; SIFMA AMG Letter at 11; Broadridge Letter at 3; MFA Letter at 9; Letter 

from Kelvin To, Founder and President, Data Boiler Technologies, LLC, dated Apr. 18, 2022 at 9.  Several 
commenters express general concerns about and set forth policy arguments against including OEMSs 
within the Commission’s exchange regulation.  See, e.g., SIFMA AMG Letter at 6 (asserting that “the 
Commission’s drafting risks moving too far beyond trading venues and is potentially capturing a broad 
range of OEMS, ETF portal, and single user systems carefully developed by a diverse group of market 
participants to introduce efficiencies and costs savings into the market, but which do not allow for separate 
users to interact and do not directly connect with multiple brokers to confirm the non-discretionary 
execution of orders”); Letter from Sarah Bessin, Associate General Counsel, Investment Company 
Institute, dated Apr. 18, 2022 (“ICI Letter”) at 9 (arguing that there are no perceived regulatory benefits 
from applying the ATS or broker-dealer regulatory framework to internalized trading activity on OEMSs, 
which is independently regulated, and stating that it may “frustrate advisers’ ability to seek best execution 
on behalf of their clients”). 



47 
 

understands that brokers, dealers, and investment advisers use OEMS technology to 

carry out their respective Commission-regulated activities.  The proposed 

amendments to Rule 3b-16 were not designed to capture within the definition of 

exchange the activities of brokers, dealers, and investment advisers who use an 

OEMS to carry out their functions (e.g., organizing and routing trading interest).  The 

use of OEMS technology, however, like other types of technology, could be used, in 

certain circumstances, to perform exchange activities (e.g., crossing orders of 

multiple buyers and sellers using established non-discretionary methods).  The 

Commission requests comment on what activities are performed today using OEMS 

technology and how the use of OEMS technology might change in the future.  The 

Commission requests comment on whether and how activities performed through the 

use of OEMS technology could meet the criteria of Rule 3b-16(a), as proposed to be 

amended.  Please explain why or why not. 

18. In light of comments that the concept of a communication protocol system could 

capture various types of technologies used by market participants for securities (e.g., 

GUIs, web chat providers, primary market communication systems, software 

solutions, or trading desks of a broker-dealer), please explain in detail and provide 

examples of the specific activities performed through the use of such technology 

identified by commenters.   

19. In response to the Proposing Release, the Commission received several comments 

expressing concern that the expansion of Exchange Act Rule 3b-16 might encompass 



48 
 

general Internet chat services, such as WhatsApp, Twitter, and Reddit.135  As stated in 

the Proposing Release, systems that provide general connectivity for persons to 

communicate without protocols containing requirements and limitations to negotiate 

trades for securities (e.g., utilities or electronic web chat providers) would not fall 

within the definition of exchange, as proposed to be amended.136  However, the 

determination as to whether a given system would meet the criteria under Rule 3b-

16(a), as proposed to be amended, must be based on the facts and circumstances 

surrounding the operation of the system, not the market name or categorization (i.e., 

simply because a program is called a “chat” or “messaging” service, it does not mean 

the service is per se outside the scope of Rule 3b-16(a), as proposed to be amended).  

For example, if a chat or messaging service was provided with a display functionality 

for trading interest in securities, an execution facility for securities, or protocols for 

participants to negotiate, the mere fact that the system contains a chat feature or 

message service would not necessarily preclude it from meeting the criteria of Rule 

3b-16 as proposed to be amended.  What features of a chat or message service could 

be considered protocols (i.e., requirements or limitations) under Rule 3b-16, as 

proposed to be amended, that would allow buyers and sellers to interact and negotiate 

a trade for securities?  Are there currently any types of chat services that are solely 

used for discussing securities but are not used for negotiating a securities trade?  Are 

 
135  See, e.g., Chia Network Letter at 4-7 (stating that the expansion to parties that “make available” 

established, non-discretionary methods could capture large numbers of Internet and telecommunications 
providers, including any company that makes any sort of messaging system available to Internet users such 
as Twitter and Reddit, and creates regulatory uncertainty for all such entities); GDCA Letter II at 10 
(stating that the term trading interest “sweeps up dialogue that otherwise would be outside the rules,” such 
as “‘inadvertent’ or ‘incidental’ exchange activity” through protocols “with a primary social or business use 
unrelated to trading” that are “used secondarily or incidentally for trading”). 

136  See Proposing Release at 15502 n.72. 



49 
 

there any types of chat services that are currently designed for buyers and sellers to 

interact and negotiate a trade for securities?  Please explain why or why not.   

20. Do commenters believe that there are other technologies, such as social networking 

websites, business communication platforms, financial information systems, 

blockchain technology nodes and smart contracting platforms,137 that could be used to 

perform activities that meet the criteria of Exchange Act Rule 3b-16(a), as proposed 

to be amended?  Are there any features of these systems that could be considered 

protocols (i.e., requirements or limitations) that allow buyers and sellers to interact 

and negotiate a trade for securities?  Please explain. 

21. Form ATS is designed to enable the Commission to determine whether an ATS 

subject to Regulation ATS is in compliance with Regulation ATS and other federal 

securities laws.138  Form ATS provides disclosures about, among other things, classes 

of subscribers, securities traded, manner of operation, and procedures governing the 

execution, reporting, clearance, and settlement of transactions.  Proposed Item 3(c) of 

Form ATS (current Form ATS Exhibit B) requires an ATS to disclose a list of 

securities the ATS trades or expects to trade, and requires disclosure of all securities, 

which includes crypto asset securities.139   

22. Form ATS-N is designed to provide market participants with information to, among 

other things, help them make informed decisions about whether to participate on an 

NMS Stock ATS (and, as proposed, on a Government Securities ATS).140  Proposed 

 
137  See infra note 278. 
138  See Form ATS Instruction A.6. 
139  See Proposing Release at 15653. 
140  See Form ATS-N Instruction D. 



50 
 

Part I, Item 8 of Form ATS-N would require an NMS Stock ATS or Government 

Securities ATS to disclose information about the NMS stocks and government 

securities that it makes available for trading, which would include any NMS stocks or 

government securities that are crypto asset securities.141  Should the Commission 

adopt an amendment to proposed Item 3(c) of Form ATS or proposed Part I, Item 8 of 

Form ATS-N to require ATSs and NMS Stock ATSs and Government Securities 

ATSs to specifically identify the securities that are crypto asset securities?  Why or 

why not?  Should the Commission make any other changes to Form ATS and Form 

ATS-N in light of the Proposing Release and the information provided in this 

Reopening Release? 

23. Form ATS-R, which is filed on a quarterly basis and deemed confidential when filed, 

is designed to enable the Commission to more effectively track the growth and 

development of ATSs, as well as to more effectively comply with its statutory 

obligations with respect to ATSs, and improve investor protection.142  Among other 

things, Form ATS-R requires ATSs to list all securities that were traded on the ATS 

at any time during the period covered by the report143 and to report total unit and 

dollar volume of transactions for certain categories of securities.144  Should Form 

 
141  See Proposing Release at 15542.   
142  See Form ATS-R Instruction A.7. 
143  See Form ATS-R Item 3.  Form ATS-R also requires a list of all subscribers that were participants of the 

ATS during each calendar quarter.  See Form ATS-R Item 2. 
144  See Form ATS-R Item 4.  For example, Form ATS-R requires NMS Stock ATSs to report the total unit and 

dollar volume of transactions in NMS stocks that are reported to the consolidated tape in “Listed Equity 
Securities” (Item 4A), “Nasdaq National Market Securities” (Item 4B), or “Nasdaq SmallCap Market 
Securities” (Item 4C).  In the Proposing Release, the Commission proposed to delete the categories 
“Nasdaq National Market Securities” and “Nasdaq SmallCap Market Securities” and require ATSs to 
report the total volume previously reported under these categories under “Listed Equity Securities.”  See 
Proposing Release at 15580.  



51 
 

ATS-R be amended to require ATSs to indicate whether any of the types of securities 

traded on the ATS are crypto asset securities?  For example, should Form ATS-R 

include a checkbox for each type of security listed on Form ATS-R for the ATS to 

indicate whether any of the securities transacted are crypto asset securities?  Why or 

why not?  Should Form ATS-R be amended to require an ATS to report the total unit 

and dollar volume of transactions in crypto asset securities for each category of 

securities?  Why or why not?  Should the Commission make any other changes to 

Form ATS-R in light of the Proposing Release and the information provided in this 

Reopening Release?  

24. Information about a New Rule 3b-16(a) System’s operations, including operations 

related to non-firm trading interest and protocols provided for buyers and sellers to 

interact and negotiate the terms of a trade, would be responsive to proposed Item 3(g) 

of Form ATS, which requires a description of the manner of operation of the ATS.  

To assist New Rule 3b-16(a) Systems in responding to Form ATS, should the 

Commission adopt an amendment to proposed Item 3 of Form ATS to add the 

following requirement as a disclosure: “any display of trading interest” and 

“protocols provided for buyers and sellers to interact and negotiate the terms of a 

trade”?  Please explain why or why not.  Although this information would be 

responsive to current Form ATS Item 8(a) and would be required to be included in 

current Form ATS Exhibit F, the explicit references would make clear to ATSs that 

such information is responsive to the form and must be provided.   

25. Proposed Item 3(j) of Form ATS (current Form ATS Item 8(d), which is required to 

be disclosed on Exhibit F) would require an ATS to provide “a description of the 



52 
 

procedures governing execution, reporting, clearance, and settlement of transactions 

effected through the [ATS].”145  Should the Commission adopt an amendment to the 

Item to include a reference to the use of DLT among the procedures so that the Item 

would state that the ATS must include “a description of the procedures, including 

through use of DLT, governing execution, reporting, clearance, and settlement of 

transactions effected through the alternative trading system”?  Please explain why or 

why not.  Although a description of the use of DLT, or any other technology, in these 

processes is currently required by the term “procedures,” the explicit reference to 

DLT would make clear that a description of its use would be required to be provided 

in Form ATS. 

26. As discussed above, several commenters ask questions about how so-called “DeFi” 

systems could comply with the requirements of Regulation ATS.146  Form ATS-N, 

which provides operational transparency and regulatory oversight of NMS Stock 

ATSs and, as proposed, of Government Securities ATSs, is technology neutral and 

asks questions designed to apply to ATSs that vary in structure and offer many 

different functionalities and trading processes and procedures.  However, Form ATS-

N provides examples of specific functionalities and procedures that would be 

responsive to particular questions.  To assist subject systems in responding to Form 

ATS-N, should the Commission adopt any changes, particularly to the examples 

provided in Form ATS-N, to clarify and highlight the applicability of certain items in 

Form ATS-N to NMS Stock ATSs and Government Securities ATSs that use DLT?  

 
145  See id. at 15654. 
146  See, e.g., supra note 55. 



53 
 

Should, for example, the Commission adopt amendments to proposed Part II, Item 5 

to provide examples of other products and services that the operator of a system that 

uses DLT may provide for the purpose of effecting transactions or submitting, 

disseminating, or displaying trading interest on the ATS?147  Should the Commission 

adopt amendments to Part III, Item 5(a) to provide web-based systems as an example 

of means by which the NMS Stock ATS or Government Securities ATS permits 

trading interest to be entered directly into the ATS?148  Should the Commission adopt 

amendments to Part III, Item 15 to provide examples of blockchain-based means by 

which trading interest can be displayed or made known to the ATS subscribers or the 

public?149  Should the Commission adopt amendments to proposed Part III, Item 21 

to provide examples of blockchain-based procedures to manage the post-trade 

processing, clearance, and/or settlement on the ATS?150  Should the Commission 

adopt amendments to proposed Part III, Item 22 to provide examples of blockchain-

based market data sources?151   

D. Exclusion from Exchange Act Rule 3b-16(a)  

In the Proposing Release, the Commission proposed to amend Rule 3b-16(b) to add an 

exclusion from Rule 3b-16(a) for systems that allow an issuer to sell its securities to investors.152  

 
147  See Proposing Release at 15546-48. 
148  See id. at 15552-53. 
149  See id. at 15563-65.  Such amendments could provide examples of blockchain-based means by which: an 

ATS may display trading interest to its subscribers or the public; a subscriber can display or make known 
trading interest through the ATS; and trading interest bound for the ATS is made known to any person.  See 
id.   

150  See id. at 15568-69. 
151  See id. at 15569. 
152  See proposed Rule 3b-16(b)(3).  



54 
 

The Commission stated in the Proposing Release that the exclusion was merely codifying in Rule 

3b-16(b)(3) an example the Commission provided in the Regulation ATS Adopting Release for 

systems that have a single seller of its securities.153  While such systems have multiple buyers 

(i.e., investors), they have only one seller for each security (i.e., issuers) and, therefore, do not 

meet the criteria of Rule 3b-16(a) because the systems do not bring together multiple buyers and 

multiple sellers.154   

One commenter states that it is unclear whether the issuer exclusion would cover portals 

on which multiple issuers offer securities.155  Another commenter suggests that the exclusion for 

issuer systems should be revised to state that it applies to a system that “allows one or more 

issuers to sell their securities to investors, either directly or through placement agents or 

underwriters.”156  This commenter states that a system that allows more than one issuer to sell its 

own securities is a single counterparty system because for any particular security, there is only 

one counterparty, the issuer of the securities.157  This commenter further states that including the 

phrase “or through placement agents or underwriters” is needed to make clear that the issuer 

exclusion may continue to be applied if the system permits an issuer to use brokers or 

underwriters, and this approach is desirable because it permits the interposition of registered 

brokers, who provide a multitude of services protective of the rights of investors.158 

Two commenters request that the Commission confirm that a system or portal that an 

exchange-traded fund (“ETF”) sponsor uses to facilitate ETF primary market operations (i.e., 

 
153  See Regulation ATS Adopting Release at 70849.  
154  Id. 
155  See SIFMA AMG Letter at 8.  
156  See ABA Letter at 8.  
157  Id. at 9. 
158  Id.  



55 
 

creation and redemption of ETF shares) (“ETF Portal”) is not a communication protocol system, 

as defined in the Proposing Release, and otherwise does not meet the definition of “exchange,” 

as proposed to be amended.159  The commenters state that ETF Portals enable registered broker-

dealers that serve as an ETF’s authorized participants (“APs”) to communicate creation or 

redemption requests for an ETF.160  One of the commenters states that ETF Portals do not create 

a market place for secondary market trading activity (i.e., trading of the actual ETF shares among 

individual investors) because they are used by ETF sponsors for the specific purpose of creating 

and redeeming their own issued securities.161  In this respect, this commenter believes that ETF 

Portals are similar to a system that allows issuers to sell their own securities to investors.162  

Another commenter similarly agrees that ETF Portals should not be included in the definition of 

an “exchange” and does not believe there would be any public benefit to treating such portals as 

exchanges and requiring ATS registration.163    

Request for Comment 

27. Should the Commission adopt Rule 3b-16(b)(3), as proposed to be amended?  Why or 

why not?  Should the Commission adopt the proposed Rule 3b-16(b)(3) exclusion but 

 
159  See SIFMA AMG Letter at 8; ICI Letter at 13.  The commenters state that they do not believe that the 

Commission intended to classify ETF Portals as exchanges under Rule 3b-16, as proposed to be amended.  
See id.   

160  See id.   
161  See ICI Letter at 14.  This commenter also states that an ETF Portal’s activities are limited in the following 

respects: “(1) the scope of ETFs involved in the creation or redemption process is confined to those offered 
by the ETF sponsor; (2) only registered broker-dealers that have an established agreement with an ETF 
sponsor’s ETF to act as an AP can submit creation or redemption requests to the ETF; and (3) the system or 
portal does not directly facilitate secondary market activity in the ETF (i.e., trading of the actual ETF 
shares among individual investors), nor does it provide access for individual investors that are not 
registered broker-dealers.”  Id. at 13.  

162  See id. at 14.  This commenter further states that applying the Regulation ATS and broker-dealer regulatory 
frameworks to ETF Portals would impose unnecessary additional costs and burdens to the ETF creation and 
redemption process, lead to unintended consequences, and would not further the Commission’s regulatory 
objectives.  See id. at 4.           

163  See SIFMA AMG Letter at 8.    



56 
 

with certain revisions?  If so, please identify those revisions and explain.  For 

example, should the Commission adopt, as suggested by one commenter, the 

proposed issuer exclusion with revisions to state that it applies to a system that 

“allows one or more issuers to sell their securities to investors, either directly or 

through placement agents or underwriters”?  In particular, should the Commission 

add “one or more issuers” to the proposed issuer exclusion?  What types of systems 

would be covered under the revised issuer exclusion example above?  Please explain.  

Is the inclusion of “either directly or through placement agents or underwriters” in the 

revised issuer exclusion example above necessary or appropriate to clarify its 

application?  If so, why?   

28. How do ETF Portals operate for the creation and redemption of securities?  Who are 

the participants in ETF Portals and how do they interact?  Are there any trading 

activities conducted as part of the creation and redemption process through an ETF 

Portal that are exchange activities or necessitate further clarification by the 

Commission as to whether such activities are exchange activities?  Do an ETF 

Portal’s activities facilitate secondary market activity in the ETF?  Why or why not?  

Does trading in ETF Portals involve multiple buyers and sellers of securities?  Why 

or why not?  What non-discretionary methods are generally used by ETF Portals? 

29. Do ETF Portals fall within the criteria of existing Exchange Act Rule 3b-16(a) or 

Rule 3b-16(a), as proposed to be amended?  Why or why not?  If the activities 

conducted through ETF Portals fall within the criteria of existing Exchange Act Rule 

3b-16(a) or Rule 3b-16(a), as proposed to be amended, should the Commission adopt 

an exclusion under Exchange Act Rule 3b-16(b)(3) for ETF Portals?  If yes, please 



57 
 

explain why and explain what the exclusion should apply to.  How should an ETF 

Portal be defined for purposes of the exclusion?  For example, should the 

Commission expressly adopt an exclusion that applies only to ETF Portals that fall 

within this definition: “a system that allows one or more issuers from the same 

sponsoring entity to solicit creation or redemption requests for their own securities 

submitted by authorized participants for those securities”?  Should the Commission 

adopt an exclusion that applies only to platforms that solely support primary market 

transactions in investment company securities, where the issuer of the security 

participates in each transaction either as the sole buyer, or as the sole seller?  If so, 

should the exclusion be available only for securities issued by ETFs or also for 

securities issued by other investment companies?  Should the exclusion specify that it 

is available only for transactions that take place at a price based on the current net 

asset value of the security, as required by 17 CFR 270.22c-1 (Rule 22c-1 under the 

Investment Company Act of 1940)?  What ETF Portals should not be excluded from 

Exchange Act Rule 3b-16(a)?  Please explain.    

E. Compliance Date for Implementation of Proposed Amendments to Rule 

3b-16 

Exchange Act Rule 3b-16, as proposed to be amended, would require, if adopted, New 

Rule 3b-16(a) Systems to comply with federal securities laws applicable to national securities 

exchanges and ATSs.  These systems may trade securities that are crypto asset securities, or 

specific types of securities, including NMS stock, over-the-counter (“OTC”) equity securities, 

corporate bonds, municipal securities, government securities, foreign sovereign debt, asset-

backed securities, restricted securities, or options.  New Rule 3b-16(a) Systems provide access to 



58 
 

numerous and diverse market participants (e.g., retail investors, institutional investors, broker-

dealers, issuers) seeking to perform different trading strategies and investment objectives in 

various types of securities.  To facilitate these market participants’ trading strategies and 

investment objectives, providers of these trading systems employ assorted technology and 

protocols (e.g., Internet, DLT, cloud) and apply a variety of methods to bring together buyers and 

sellers in securities (e.g., RFQ, indication of interest, negotiation, conditional orders, bid wanted 

in competition, streaming axes).    

Several commenters express concern that New Rule 3b-16(a) Systems would not be 

provided enough time to comply with their new regulatory obligations.164  As stated in the 

Proposing Release, the Commission expects that many New Rule 3b-16(a) Systems would elect 

to register as broker-dealers and comply with Regulation ATS;165 however, they can also elect to 

register as exchanges.166  The Commission recognizes that New Rule 3b-16(a) Systems are 

operating today and would seek to comply with the Proposed Rules without disrupting their 

current business and their participants.  To facilitate the trading system operators’ compliance 

with the Proposed Rules, the Commission is soliciting further public comment on any 

compliance dates for the Proposed Rules.   

Request for Comment 

30. Should the Commission adopt a compliance date to delay implementation for New 

Rule 3b-16(a) Systems?  Why or why not?  Should the Commission adopt the same 

 
164  See, e.g., MarketAxess Letter at 5; Letter from Teana Baker-Taylor, Chief Policy Officer, Chamber of 

Digital Commerce, dated Mar. 24, 2022 (“Chamber Letter”) at 5; Letter from Elisa Hirschmann, Executive 
Director, Chief Compliance Officer, BrokerTec Americas LLC, CME Group, Inc., dated Apr. 18, 2022 at 
4; Bloomberg Letter I at 4-5; Letter from Scot J. Halvorsen, Associate General Counsel, Cboe Global 
Markets, Inc., dated Apr. 18, 2022 (“Cboe Letter”) at 2; Crypto Council Letter at 7. 

165  See Proposing Release at 15502. 
166  See id. at 15617-18.  



59 
 

compliance date for all New Rule 3b-16(a) Systems or different compliance dates 

depending on certain factors, such as the type of securities the system trades?  Please 

explain.  For example, should the Commission adopt separate compliance dates to 

implement the proposed amendments to Exchange Act Rule 3b-16 for trading 

systems that trade one or more of the following: NMS stock, OTC equity securities, 

corporate bonds, municipal securities, government securities, foreign sovereign debt, 

asset-backed securities, restricted securities, or options?  Please explain. 

31. As indicated above, crypto assets generally use DLT as a method to record ownership 

and transfers, and a crypto asset that is a security is not a separate type or category of 

security for purposes of federal securities laws based solely on the use of DLT.167  

Should the Commission adopt a separate compliance date for New Rule 3b-16(a) 

Systems that trade crypto asset securities?168  Please explain.  If the Commission 

adopts a different compliance date for New Rule 3b-16(a) Systems that trade crypto 

asset securities, for purposes of ascribing such compliance date, should “crypto asset 

securities” be defined to mean securities that are also issued and/or transferred using 

distributed ledger or blockchain technology, including, but not limited to, so-called 

“virtual currencies,” “coins,” and “tokens,” to the extent they rely on cryptographic 

protocols?169  Please explain.   

32. Should the Commission adopt a uniform compliance period for all categories of 

securities that is one year?  Or would a shorter or longer time period than one year be 

 
167  See supra note 27and accompanying text. 
168  Such a delayed compliance date for New Rule 3b-16(a) Systems would not impact the obligation of 

systems that meet the existing criteria of Rule 3b-16 to comply with existing rules. 
169  In the past, the Commission used this definition for “digital asset securities” in the Commission Statement 

on Custody of Digital Asset Securities by Special Purpose Broker-Dealers.  See supra note 26.  



60 
 

sufficient or necessary?  If commenters believe the Commission should adopt 

different compliance dates for trading systems that trade a category of security, what 

compliance date should the Commission adopt for such trading systems?  Please 

explain.   

33. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 

Systems based on the types of participants that trade on the system?  For example, 

should the Commission adopt a delayed compliance date for trading systems that 

have predominately retail, institutional, or broker-dealer participants?  Please explain.  

What compliance date should the Commission adopt for these types of trading 

systems?  Please explain.   

34. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 

Systems based on the different means by which participants enter trading interest into 

the system?  For example, should the Commission adopt a delayed compliance date 

for trading systems that perform intermediary services, such as entering trading 

interest into the trading system on behalf of users or offering users services other than 

trading?  Should the Commission adopt a delayed compliance date for trading 

systems that allow buyers and sellers to enter trading interest into the system directly 

without an intermediary?  Please explain.  What compliance date should the 

Commission adopt for these types of trading systems?  Please explain.   

35. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 

Systems based on different trading protocols that bring together buyers and sellers to 

negotiate a trade?  For example, should the Commission adopt different compliance 

dates for trading systems that provide RFQs, indications of interest, bids wanted in61 
 

competition, or streaming axes?  Should the Commission adopt a delayed compliance 

date for trading systems that use AMMs for buyers and sellers to enter trading interest 

into the system and negotiate a trade?  What compliance date should the Commission 

adopt for these types of trading systems?  Please explain.   

36. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 

Systems based on the technology supporting its exchange activity (e.g., Internet, 

DLT, cloud)?  For example, should the Commission adopt a delayed compliance date 

for trading systems that use DLT to bring together buyers and sellers using trading 

interest and establish protocols that allow participants to negotiate a trade?  Please 

explain.  What compliance date should the Commission adopt for these types of 

trading systems?  Please explain.   

37. Should the Commission adopt different compliance dates for New Rule 3b-16(a) 

Systems based on the volume that trading systems transact?  For example, should the 

Commission adopt a delayed compliance date for a trading system that transacts a 

certain level of dollar volume or share volume, and if so, what should that volume be?  

Should the Commission adopt different compliance dates for trading systems based 

on all of their transaction volume or only transaction volume in a category of security 

or in a crypto asset security?  Please explain.  What compliance date should the 

Commission adopt for these types of trading systems?  Please explain.  

38.  Should the Commission adopt different compliance dates for New Rule 3b-16(a) 

Systems based on a combination of factors described above or any other factors?  

Please explain.   



62 
 

IV. Paperwork Reduction Act 

In the analysis of the proposed rule amendments under the Paperwork Reduction Act of 

1995 (“PRA”) of the Proposing Release, the Commission estimated 22 Communication Protocol 

Systems170 would be impacted by the Proposed Rules.  This estimate included systems that offer 

trading of OTC equity securities and restricted securities, some of which trade crypto asset 

securities.   

The Commission is revising the estimated number of trading systems that would be 

impacted by the proposed amendments to Exchange Act Rule 3b-16 to include: (1) New Rule 

3b-16(a) Systems that trade crypto asset securities and were not included in the estimates in the 

Proposing Release, and (2) New Rule 3b-16(a) Systems for non-crypto asset securities that have 

exited, entered, or intend to enter, the market since the Commission issued the Proposing 

Release.  The Commission is not revising its estimate of the per-respondent burdens that would 

be imposed by the proposed amendments to Rule 3b-16(a).  The summary of the “collection of 

information” requirements within the meaning of the PRA and the proposed use of such 

information described in the Proposing Release are unchanged. 

A. Respondents 

As discussed in the Proposing Release,171 the Commission believes that New Rule 3b-

16(a) Systems would likely choose to register as a broker-dealer and comply with the conditions 

of Regulation ATS rather than register as a national securities exchange because of the lighter 

 
170  The Proposing Release referred to systems that would newly meet the definition of “exchange” under the 

Proposed Rules as “Communication Protocol Systems.”  See Proposing Release at 15496 n.5.  See also id. 
at 15586 (estimating the total number of Communication Protocol Systems to be 22).   

171  See id. at section VII. 



63 
 

regulatory requirements imposed on ATSs, as compared to registered exchanges.172  For 

purposes of this PRA analysis, New Rule 3b-16(a) Systems that would comply with Regulation 

ATS are referred to as “Newly Designated ATSs.”173  In the Proposing Release, the Commission 

estimated the total number of Newly Designated ATSs, across all asset classes, to be 22.174  

Since issuing the Proposing Release, the Commission has learned, based on public sources of 

information, of several trading systems that appear to offer the use of non-firm trading interest, 

provide non-discretionary protocols, trade crypto asset securities, and were not included within 

the Commission’s initial estimate of the number of respondents.  Based on publicly-available 

information, these trading systems may meet the criteria of Exchange Act Rule 3b-16(a) as 

proposed to be amended and therefore, this PRA analysis includes estimates of the burdens that 

these systems would incur under the Proposed Rules.  Many of the entities operating such trading 

systems, however, depending on their activities and other facts and circumstances, may be 

subject to existing federal securities laws and registration requirements, including the 

requirement to register as an exchange under existing criteria of Rule 3b-16(a) or the requirement 

to register as a broker-dealer.  In this regard, the Commission recognizes that it may be over-

 
172  See id. at section II.D.  As discussed above, today, the Commission preliminarily believes that some 

amount of crypto asset securities trade on New Rule 3b-16(a) Systems.  See supra note 31.  These systems 
are not included as estimated respondents for the purposes of the PRA analysis because they are already 
required to comply with current applicable regulations; the proposed amendments to Rule 3b-16 would not 
result in any new burden on these systems.  Rather, the PRA analysis includes the estimated number of 
respondents for which a new burden would be imposed by the proposed amendments to Rule 3b-16.  
Further, as discussed earlier in this section, the Commission is not revising its estimate of the per-
respondent burdens that would be imposed by the proposed amendments to Rule 3b-16.  The increase in the 
estimate of total burdens across all respondents is due solely to the Commission revising its estimate of the 
number of respondents to include: (1) systems that would meet the criteria of Rule 3b-16, as proposed to be 
amended, and trade crypto asset securities; and (2) systems that would meet the criteria of Rule 3b-16, as 
proposed to be amended, and trade securities that are not crypto asset securities and have entered, intend to 
enter, or exited the market since the Commission issued the Proposing Release. 

173  See supra note 170.  The description of respondents and burden estimates described in this Reopening 
Release for Newly Designated ATSs supersedes and replaces corresponding respondent and burden 
estimates for Communication Protocol Systems in the Proposing Release.    

174  See Proposing Release at section VII.C.  



64 
 

estimating the number of respondents that may be subject to the Proposed Rules.  Specifically, 

the Commission is revising the estimated total number of Newly Designated ATSs from the 22 

estimated systems in the Proposing Release to a total of 35-46 estimated Newly Designated 

ATSs,175 which would include: (1) an additional 15-20 New Rule 3b-16(a) Systems that trade 

crypto asset securities,176 and (2) 20-26 Newly Designated ATSs (revised from the 22 Newly 

Designated ATSs estimated in the Proposing Release),177 which has been revised to reflect New 

Rule 3b-16(a) Systems for non-crypto asset securities that have exited, entered, or intend to 

enter, the market since the Commission issued the Proposing Release.  For the purposes of this 

PRA analysis, the Commission is analyzing the burdens for an estimated 46 Newly Designated 

 
175  As discussed in the Proposing Release, some of the estimates could change based on how the Newly 

Designated ATSs structure their operations if subject to Regulation ATS.  See id. at 15586 n.749.  For 
example, the Commission is basing some of the below estimates on the assumption that operators of Newly 
Designated ATSs that are affiliated with existing broker-dealers would structure their operations so that the 
existing broker-dealer would operate the ATS to avoid the costs of new broker-dealer registration.  In 
addition, the Commission estimates that 2 Newly Designated ATSs that trade municipal securities or 
corporate debt securities would meet the volume thresholds to satisfy the conditions for complying with 
ATS-specific systems capacity, integrity and security recordkeeping as well as systems outages 
requirements.  This number is based on aggregate data reported by broker-dealers and could vary based on 
how these systems structure their businesses. 

176  The Commission received several comments stating that the PRA analysis in the Proposing Release 
underestimated or did not include systems that trade crypto asset securities.  See, e.g., Bloomberg Letter II 
at 2-3; Coin Center Letter at 25; Coinbase Letter at 6; Crypto Council Letter at 4-7.  One commenter states 
that the Commission did not include approximately 288 crypto “exchanges,” 200 crypto AMMs, and 9 
front-end platforms that offer liquidity aggregation and (smart) order routing functionality.  See Bloomberg 
Letter II at 2-3.  It is not clear from the comment letter whether these systems operate in the U.S., use non-
firm trading interest, and provide non-discretionary protocols to bring together buyers and sellers to 
negotiate, and thus would be New Rule 3b-16(a) Systems and subject to the new burdens analyzed under 
the PRA.  In addition, the Commission preliminarily believes that some amount of crypto asset securities 
trade on New Rule 3b-16(a) Systems.  See supra note 31.  These systems could be some or many of the 
systems the commenter references.  However, without additional information, the Commission is unable to 
assess whether the systems referenced by the commenter would meet existing Rule 3b-16(a), or Rule 3b-
16(a), as proposed to be revised.  In addition, some commenters estimate that hundreds or thousands of 
persons could be captured by the proposed rule change.  See supra note 60.  See also SIFMA Letter II at 8-
9 (stating that “[t]he broad concept of communication protocol systems could theoretically capture 
hundreds, if not thousands, of systems across asset classes” and there is a disconnect with the 
Commission’s estimate that 22 systems would be affected by the Proposed Rules).  As discussed above, 
systems would constitute a single exchange and be responsible for compliance as a single entity.  See supra 
section II.B. 

177  The original 22 Newly Designated ATSs the Commission estimated in the Proposing Release may include 
ATSs that trade crypto asset securities. 



65 
 

ATSs, based on the high end of these ranges.178  Some or all of this total number will be subject 

to the following collections of information179 as estimated below:180    

  

Collection of 
Information 

Rule Number of 
Respondents 

Description 

Rule 301 of 
Regulation ATS 
and Forms ATS 
and ATS-R 

 

17 CFR 
242.301(b)(2) 
(“Rule 
301(b)(2)”) 

37 The Commission estimates that 
certain Newly Designated ATSs 
that trade securities other than 
NMS stocks or government 
securities or repos, including 
crypto asset securities, would be 
required to file the proposed 
modernized Form ATS. 

 Rule 301(b)(5) 10 The Commission estimates that 
certain Newly Designated ATSs 
would meet the volume 
thresholds in government 
securities, NMS stocks, corporate 
debt securities, municipal 
securities, equity securities that 
are not NMS stocks and for 
which transactions are reported 

 
178  In the Proposing Release, the Commission certified that the proposed amendments to Regulation ATS 

would not, if adopted, have a significant economic impact on a substantial number of small entities 
pursuant to section 3(a) of the Regulatory Flexibility Act of 1980 (5 U.S.C. 603(a)).  See Proposing Release 
at 15645.  The Commission did not receive any comment regarding its certification.  Although the 
Commission is now revising its estimate of the number of respondents that would be subject to the 
proposed rules, the Commission continues to certify that the proposed amendments would not, if adopted, 
have a significant economic impact on a substantial number of small entities.  As in the Proposing Release, 
the Commission encourages written comments regarding this certification. 

179  The estimates presented here relate only to those collections of information for which the burdens will 
change as a result of increasing the estimated total number of Newly Designated ATSs.  For the complete 
estimated burden associated with the proposed amendments, the estimates here for Newly Designated 
ATSs should be considered together with those originally included in the Proposing Release for 
Communication Protocol Systems, see Proposing Release at section VII, with any burden identified by the 
identical combination of Collection of Information and rule number replaced and superseded by that 
contained here.  

180  The estimated respondents for the Rule 304/Form ATS-N collection of information is based on the 
assumption that systems that operate multiple market places that are affiliated with a new or existing 
broker-dealer will all be operated by such broker-dealer, and that such systems will not register multiple 
broker-dealers to operate multiple affiliated ATSs. 



66 
 

Collection of 
Information 

Rule Number of 
Respondents 

Description 

to an SRO and be subject to the 
Fair Access Rule. 

 17 CFR 
242.301(b)(9) 
(“Rule 
301(b)(9)”) 

46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the 
requirement to file quarterly 
reports on the proposed 
modernized Form ATS-R. 

 17 CFR 
242.301(b)(10) 
(“Rule 
301(b)(10)”) 

46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the 
requirement to have written 
safeguards and written 
procedures to protect 
subscribers’ confidential trading 
information. 

Rule 302 of 
Regulation ATS 

17 CFR 
242.302 (“Rule 
302”) 

46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the 
recordkeeping requirements for 
ATSs. 

Rule 303 of 
Regulation ATS 

17 CFR 
242.303 (“Rule 
303”) 

46 The Commission estimates that 
all Newly Designated ATSs will 
need to comply with the record 
preservation requirements for 
ATSs. 

Rule 304 of 
Regulation ATS 

17 CFR 
242.304 (“Rule 
304”) 

9 The Commission estimates that 
certain Communication Protocol 
Systems that trade NMS stocks 
or government securities or repos 
would be required to file Form 
ATS-N, as proposed to be 
revised. 

Rule 15b1-1 and 
Form BD 

17 CFR 
240.15b1-1 
(“Rule 15b1-1”) 

27 The Commission estimates that 
certain Newly Designated ATSs 
are not currently registered as or 
affiliated with a broker-dealer 
and will need to register using 



67 
 

Collection of 
Information 

Rule Number of 
Respondents 

Description 

Form BD.  This would include 
all Newly Designated ATSs that 
trade crypto asset securities that 
do not currently file a Form ATS. 

Form ID 17 CFR 
232.101 (“Rule 
101 of 
Regulation S-
T”) 

27 The Commission estimates that 
the same subset of Newly 
Designated ATSs that are not 
currently registered as or 
affiliated with a broker-dealer 
will also need to file Form ID to 
apply for EDGAR access. 

 

B. Total PRA Burdens 

The Commission continues to assume that, under the proposed amendments, Newly 

Designated ATSs will choose to register as broker-dealers and comply with the conditions of 

Regulation ATS, rather than register as a national securities exchange,181 and the estimates 

below reflect this assumption. 

1. Burden of Rule 301 of Regulation ATS and Forms ATS and ATS-R 

a. Rule 301(b)(2) Burden on Newly Designated ATSs 

 As discussed in the Proposing Release, the Commission estimates that each Newly 

Designated ATS would incur an initial burden of 20.5 hours182 and an annual burden of 5 

 
181  See Proposing Release at 15618 n.1056 and accompanying text. 
182 The Commission’s currently approved baseline for the average initial compliance burden for each initial 

operation report (“IOR”) on Form ATS is 20 hours (Attorney at 13 hours + Compliance Clerk at 7 hours).  
See Extension Without Change of a Currently Approved Collection: Regulation ATS Rule 301 
Amendments; ICR Reference No. 202101-3235-011; OMB Control No. 3235-0509 (June 9, 2018), 
available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-011 (“Rule 301 
PRA Supporting Statement”).  The Commission proposed amendments to Part I of Form ATS, which 
would add an additional burden of 0.5 hours per filing using the modernized form (Compliance Clerk at 0.5 
hours), and therefore the average compliance burden for each Form ATS filing would be 20.5 hours.  See 
Proposing Release at section V.B and section VII.E (discussing proposed changes). 

https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-011%20


68 
 

hours183 for complying with Rule 301(b)(2).  In light of the revision of the Commission’s 

estimate of Newly Designated ATSs, the Commission estimates the following total initial and 

annual burdens: 

Burden Type Respondent Type Number of 
Respondents 

Burden per 
Respondent 

Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent) 
 

Initial Newly Designated 
ATSs 

37 20.5 hours 758.5 hours  

Annual 5 hours 185 hours  

 

b. Rule 301(b)(5) Burden on Newly Designated ATSs  

As discussed in the Proposing Release, the Commission estimates an annual compliance 

burden of 37 hours per respondent for Rule 301(b)(5).184  In light of the revision of the 

Commission’s estimate of Newly Designated ATSs, the Commission estimates the following 

total annual burdens: 

 
183 The Commission’s currently approved baseline for the average ongoing compliance burden for each 

amendment to a Form ATS IOR is 4 hours ((Attorney at 1.5 hours + Compliance Clerk at 0.5 hours) × 2 
IOR amendments a year).  See Rule 301 PRA Supporting Statement.  The Commission proposed 
amendments to Part I of Form ATS, including a requirement applicable to an ATS filing an IOR 
amendment to attach as Exhibit 3 a marked document to indicate changes to “yes” or “no” answers and 
additions or deletions from any Item in Part I, Part II, and Part III, which would add an additional annual 
burden of 1 hour per ATS using the modernized form (Compliance Clerk at 0.5 hours × 2 IOR amendments 
a year).  Therefore the average compliance burden for each Form ATS filing would be 5 hours.  See 
Proposing Release at section V.B and section VII.E (discussing proposed changes). 

184 The Commission’s currently approved baseline for the average compliance burden per respondent is 37 
hours = 10 hours for Fair Access standards recordkeeping (Attorney at 5 hours × 2 responses a year) + 27 
hours for Fair Access notices (Attorney at 1 hour × 27 responses a year).  See Proposing Release at section 
VII.D.1.b. 



69 
 

Respondent Type Number of 
Respondents 

Annual Burden 
per Respondent 

Total Annual Burden 
(Number of 
Respondents × Annual 
Burden per 
Respondent)  
 

Newly Designated ATSs 10 37 hours 370 hours   

 

c. Rule 301(b)(6) Burden on Newly Designated ATSs 

The Commission estimates that none of the Newly Designated ATSs trading crypto asset 

securities or that have entered or intend to enter the market since the Commission issued the 

Proposing Release would meet the applicable volume requirements and be subject to the 

requirements of 17 CFR 242.301(b)(6) (“Rule 301(b)(6)”), and therefore, the estimates in the 

Proposing Release remain unchanged. 

d. Rule 301(b)(9) Burden on All Respondents 

As discussed in the Proposing Release, the Commission estimates an annual compliance 

burden of 19 hours per new Form ATS-R respondent185 and 3 hours per existing Form ATS-R 

respondent.186  In light of the revision of the Commission’s estimate of Newly Designated ATSs, 

the Commission estimates the following total annual burdens: 

Respondent Type Number of 
Respondents 

Annual Burden 
per Respondent 

Total Annual Burden 
(Number of 
Respondents × Annual 
Burden per 
Respondent)  
 

Newly Designated ATSs 46 19 hours 874 hours   

 

 
185 The annual burden per Newly Designated ATS would be 4.75 hours × 4 quarterly filings annually = 19 

burden hours.  See Proposing Release at 15590 n.770. 
186 The annual burden per existing Form ATS-R respondent would be 0.75 hours × 4 quarterly filings annually 

= 3 burden hours.  See id. at 15590 n.771. 



70 
 

e. Rule 301(b)(10) Burden on Newly Designated ATSs 

As discussed in the Proposing Release, the Commission estimates an initial burden of 8 

hours187 and an annual burden of 4 hours188 per respondent for complying with Rule 301(b)(10).  

In light of the revision of the Commission’s estimate of Newly Designated ATSs, the 

Commission estimates the following total initial and annual burdens: 

Burden 
Type 

Respondent Type Number of 
Respondents 

Burden per 
Respondent 

Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent) 

Initial Newly Designated 
ATSs 

46 8 hours 368 hours  

Annual 4 hours 184 hours  

 

2. Burden of Rules 302 and 303 of Regulation ATS on Newly Designated 

ATSs 

As discussed in the Proposing Release, the Commission estimates an annual burden of 45 

hours per respondent to comply with Rule 302189 and 15 hours to comply with Rule 303.190  In 

 
187 The Commission’s currently approved baseline for the average initial compliance burden is 8 hours 

(Attorney at 7 hours + Compliance Clerk at 1 hour).  See Rule 301 PRA Supporting Statement.     
188 The Commission’s currently approved baseline for the average ongoing compliance burden is 4 hours 

(Attorney at 2 hours + Compliance Clerk at 2 hours).  See id. 
189 The Commission’s currently approved baseline for the average compliance burden is 45 hours (Compliance 

Clerk at 45 hours).  See Extension Without Change of a Currently Approved Collection: Rule 302 (17 CFR 
242.302) Recordkeeping Requirements for Alternative Trading Systems; ICR Reference No. 201906-3235-
011; OMB Control No. 3235-0510 (Oct. 24, 2019), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201906-3235-011.  There is no initial 
burden associated with this rule. 

190 The Commission’s currently approved baseline for the average compliance burden is 15 hours (Compliance 
Clerk at 15 hours).  See Extension Without Change of a Currently Approved Collection: Rule 303 (17 CFR 
242.303) Record Preservation Requirements for Alternative Trading Systems; ICR Reference No. 202101-
3235-010; OMB Control No. 3235-0505 (June 25, 2021), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202101-3235-010.  There is no initial 
burden associated with this rule. 

https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201906-3235-011
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71 
 

light of the revision of the Commission’s estimate of Newly Designated ATSs, the Commission 

estimates the following total annual burdens:  

Rule Respondent Type Number of 
Respondents 

Annual 
Burden per 
Respondent 

Total Annual 
Burden 
(Number of 
Respondents × 
Annual Burden 
per Respondent) 
  

Rule 302 Newly Designated 
ATSs 

46 45 hours 2,070 hours   

Rule 303 15 hours 690 hours   

 

3. Burden of Rule 304 of Regulation ATS and Form ATS-N on Newly 

Designated ATSs 

As discussed in the Proposing Release, the Commission estimates an initial compliance 

burden of 136.4 hours per new Form ATS-N respondent191 and an annual burden of 47 hours.192  

In light of the revision of the Commission’s estimate of Newly Designated ATSs, the 

Commission estimates the following total annual burdens: 

 
191 The Commission’s currently approved baseline for the average initial compliance burden for each initial 

Form ATS-N is 130.4 hours (currently approved baseline burden to complete an initial Form ATS at 20 
hours: Attorney at 13 hours and Compliance Clerk at 7 hours; see Proposing Release at 15588 n.759) + 
(Part I at 0.5 hour) + (Part II at an average of 29 hours) + (Part III at an average of 78.75 hours) + (Access 
to EDGAR at 0.15 hours) + (Posting link to published Form ATS-N on ATS website at 2 hours) = 130.4 
burden hours.  See Extension Without Change of a Currently Approved Collection: Regulation ATS Rule 
304 and Form ATS-N; ICR Reference No. 202109- 3235-014; OMB Control No. 3235-0763 (January 3, 
2022), available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202109-3235-014 (“Rule 
304  PRA Supporting Statement”).  The aggregate totals by professional, including the  baseline, are 
estimated to be approximately 54.6 hours for an Attorney, 0.5 hours for a  Chief Compliance Manager, 
34.55 hours for a Compliance Manager, 32.25 hours for a  Senior Systems Analyst, 1 hour for a Senior 
Marketing Manager, and 7.5 hours for a  Compliance Clerk.  The Commission estimates that the proposed 
amendments to Form  ATS-N would add an additional burden of 6 hours per filing (Attorney at 2.5 hours,  
Compliance Manager at 1.5 hours, Senior Systems Analyst at 1.5 hours, and Compliance  Clerk at 0.5 
hours), and therefore the average compliance burden for each new Form  ATS-N filer would be 136.4 
hours.  See Proposing Release at section V.B and section VII.E (discussing proposed changes). 

192 The currently approved baseline for filing amendments to Form ATS-N is 47 hours ((Attorney at 5.5 hours 
+ Compliance Manager at 2 hours + Compliance Clerk at 1.9 hours) × 5 amendments a year).  See Rule 
304 PRA Supporting Statement. 



72 
 

Burden Type Respondent Type Number of 
Respondents 

Burden per 
Respondent 

Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent, 
rounded to 
nearest 0.5 
hours) 

Initial Newly Designated 
ATSs 

9 136.4 hours 1,227.5 hours  

Annual 47 hours 423 hours  

 

4. Burden of Rule 15b1-1 and Form BD on Newly Designated ATSs 

As discussed in the Proposing Release, the Commission estimates an initial burden of 

2.75 hours193 and an annual burden of 1 hour194 per respondent for completing Form BD.  In 

light of the revision of the Commission’s estimate of Newly Designated ATSs, the Commission 

estimates the following total initial and annual burdens: 

 
193 The Commission’s currently approved baseline for the average initial compliance burden for each Form 

BD is 2.75 hours (Compliance Manager at 2.75 hours).  See Extension Without Change of a Currently 
Approved Collection: Form BD and Rule 15b1-1. Application for registration as a broker-dealer; ICR 
Reference No. 201905-3235-016; OMB Control No. 3235-0012 (Aug. 7, 2019), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201905-3235-016. (“Form BD PRA 
Supporting Statement”). 

194 The Commission’s currently approved baseline for the average ongoing compliance burden for each 
respondent amending Form BD is 0.95 hours (Compliance Manager at 0.33 hours × 2.87 amendments per 
year).  See Form BD PRA Supporting Statement. 

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73 
 

Burden Type Respondent Type Number of 
Respondents 

Burden per 
Respondent 

Total Burden 
(Number of 
Respondents × 
Burden per 
Respondent, 
rounded to 
nearest 0.5 
hours) 
 

Initial Newly Designated 
ATSs  

27 2.75 hours 74 hours  

Annual 0.95 hours 25.5 hours  

 

5. Burden of Form ID on Newly Designated ATSs 

As discussed in the Proposing Release, the Commission estimates, with regards to Rule 

101 of Regulation S-T, an initial burden of 0.15 hours195 and no annual burden per respondent 

for completing Form ID.  In light of the revision of the Commission’s estimate of Newly 

Designated ATSs, the Commission estimates the following total burdens: 

Respondent Type Number of 
Respondents 

Initial Burden 
per Respondent 

Total Initial Burden 
(Number of 
Respondents × Initial 
Burden per 
Respondent, rounded to 
nearest 0.5 hours)  
 

Newly Designated ATSs 27 0.15 hours 4 hours   

 

6. Burden of Regulation SCI on Newly Designated ATSs 

The Commission does not estimate any Newly Designated ATSs that trade crypto asset 

securities or that have exited, entered, or intend to enter the market since the Commission issued 

 
195 See Revision of a Currently Approved Collection: Form ID - EDGAR Password; ICR Reference No. 

202104-3235-022; OMB Control No. 3235-0328 (Apr. 29, 2021), available at 
https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202104-3235-022. 

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74 
 

the Proposing Release will be subject to Regulation SCI,196 and therefore, the estimates in the 

Proposing Release remain unchanged. 

C. Request for Comments 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments to:   

39. Evaluate whether the proposed collection of information is necessary for the proper 

performance of the Commission’s functions, including whether the information shall 

have practical utility; 

40. Evaluate the accuracy of the Commission’s estimates of the burden of the proposed 

collection of information;  

41. Determine whether there are ways to enhance the quality, utility, and clarity of the 

information to be collected;   

42. Evaluate whether there are ways to minimize the burden of collection of information 

on those who are to respond, including through the use of automated collection 

techniques or other forms of information technology; and 

43. Evaluate whether the proposed amendments would have any effects on any other 

collection of information not previously identified in this section. 

 Persons submitting comments on the collection of information requirements should direct 

them to the Office of Management and Budget, Attention: Desk Officer for the Securities and 

Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, 

and should also send a copy of their comments to Vanessa Countryman, Secretary, Securities and 

Exchange Commission, 100 F Street NE, Washington, DC 20549-1090, with reference to File 

Number S7-02-22.  Requests for materials submitted to Office of Management and Budget 

 
196  “Regulation SCI” consists of 17 CFR 242.1000 through 242.1007.   



75 
 

(“OMB”) by the Commission with regard to this collection of information should be in writing, 

with reference to File Number S7-02-22 and be submitted to the Securities and Exchange 

Commission, Office of FOIA/PA Services, 100 F Street NE, Washington, DC 20549-2736.  As 

OMB is required to make a decision concerning the collection of information between 30 and 60 

days after publication, a comment to OMB is best assured of having its full effect if OMB 

receives it within 30 days of publication. 

V. Economic Analysis 

A. Introduction 

The Commission received comments on the Proposing Release stating that the 

Commission had not considered the economic effects of the Proposed Rules on New Rule 3b-

16(a) Systems that trade crypto asset securities.197  In this section the Commission is 

supplementing the economic analysis provided in the Proposing Release with additional analysis 

that considers the impact of the Proposed Rules on New Rule 3b-16(a) Systems that trade crypto 

asset securities.198   

The Commission preliminarily believes that some amount of crypto asset securities trade 

on New Rule 3b-16(a) Systems.  These New Rule 3b-16(a) Systems do not meet the current 

definition of an exchange and thus are not subject to regulation either as a national securities 

 
197  See GDCA Letter II at 4, 5, and 6; Crypto Council Letter at 2, 3, 4, and 5; McHenry/Huizenga Letter at 2; 

LeXpunK Letter at 3; ADAM Letter II at 13 and 14; Chamber Letter at 4; Coinbase Letter at 2 and 6; a16z 
Letter at 2, 3, 7, 20 and 21; Blockchain Association Letter II at 1 and 7; DeFi Education Fund Letter at 3. 

198  Exchange Act section 3(f) requires the Commission, when it is engaged in rulemaking pursuant to the 
Exchange Act and is required to consider or determine whether an action is necessary or appropriate in the 
public interest, to consider, in addition to the protection of investors, whether the action will promote 
efficiency, competition, and capital formation.  See 15 U.S.C. 78c(f).  In addition, Exchange Act section 
23(a)(2) requires the Commission, when making rules pursuant to the Exchange Act, to consider among 
other matters the impact that any such rule would have on competition and not to adopt any rule that would 
impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the 
Exchange Act.  See 15 U.S.C. 78w(a)(2). 



76 
 

exchange or an ATS.  By amending Exchange Act Rule 3b-16 to include New Rule 3b-16(a) 

Systems within the definition of exchange, the Proposed Rules would functionally apply 

Regulation ATS to an additional number of entities not currently regulated by it.  This would 

have a number of benefits, including enhanced regulatory oversight and protection for investors, 

a reduction in trading costs and improvement in execution quality, and enhancement of price 

discovery and liquidity.   

The Proposed Rules would also have costs for those entities subject to new requirements, 

including compliance costs associated with filing forms such as Form ATS-N or Form ATS, 

protecting confidential information, keeping certain records, registering as a broker-dealer, and 

complying with the Fair Access Rule and/or Regulation SCI if applicable. 

For purposes of measuring the effects of the proposed rule on participants in crypto asset 

securities markets, this analysis assumes that market participants are compliant with existing 

applicable Commission and FINRA rules, including those requiring registration and the rules and 

regulations applicable to such registered entities.  To the extent that some entities engaged in 

activities involving crypto asset securities are not, but should be, FINRA or Commission 

registered entities, they may incur additional costs to comply with existing rules and registration 

obligations that are distinct from the costs associated with the Proposed Rules and are not 

discussed in this analysis.  Similarly, any benefits from coming into compliance with existing 

rules and registration obligations are also not discussed in this analysis, and effects on efficiency, 

competition, and capital formation may differ from the discussion in this analysis to the extent 

impacted entities do not comply with existing applicable Commission or FINRA rules.  For such 

entities, we expect the benefits and costs specifically associated with the Proposed Rules to be 

the same as those described below as applicable. 



77 
 

B. Baseline 

1. Current State of Crypto Asset Markets 

The global market for crypto assets is valued by some estimates at approximately $900 

billion,199 as of December 2022.  Volatility in the price of crypto assets has caused this number 

to fluctuate considerably over the past few years.  For example, in July of 2020 the market was 

estimated to be worth approximately $276 billion, but went on to reach a peak value of 

approximately $3 trillion by November 2021.200  A subset of these crypto assets are securities 

with associated activity within the U.S.201   

The Commission has limited information regarding crypto asset securities.202  This 

limitation is, in part, due to the fact that only a small portion of crypto asset security trading 

 
199  See, e.g., Global Cryptocurrency Market Cap Charts, CoinGecko, available at 

https://www.coingecko.com/en/global-charts (last visited on Mar. 15, 2023).  
200  Id. 
201  The Commission is aware that some amount of activity in the market for crypto assets discussed in this 

Reopening Release is conducted outside the U.S.  Due to unique challenges in analyzing the crypto asset 
market, the Commission faces obstacles to obtaining reliable, comprehensive, and comparable information 
to determine, in this rulemaking, the extent of the activities taking place within the U.S.  For example, 
while the issuance of a crypto asset on a blockchain can be detected by observers of the blockchain, the 
national or international scope of the activities involving this asset is not always readily apparent.  
Furthermore, many of the platforms on which crypto assets are traded do not provide publicly available 
information that could be used to inform the determination about the scope of their operations.  This is due, 
in part, to the significant amount of trading in crypto asset securities that may be occurring in non-
compliance with the federal securities laws.  See also supra note 26 (discussing crypto assets that are 
securities).     

202  See, e.g., FSOC Report, supra note 30 (“The crypto-asset ecosystem is characterized by opacity that creates 
challenges for the assessment of financial stability risks.”); Crypto-Assets Treasury Report, supra note 75, 
at 12 (finding that data pertaining to “off-chain activity” is limited and subject to voluntary disclosure by 
trading platforms and protocols, with protocols either not complying with or not subject to obligations “to 
report accurate trade information periodically to regulators or to ensure the quality, consistency, and 
reliability of their public trade data”); Fin. Stability Bd., Assessment of Risks to Financial Stability from 
Crypto-assets 18-19 (Feb. 16, 2022) (“FSB Report”), available at https://www.fsb.org/wp-
content/uploads/P160222.pdf (finding that the difficulty in aggregating and analyzing available data in the 
crypto asset space “limits the amount of insight that can be gained with regard to the [crypto asset] market 
structure and functioning,” including who the market participants are and where the market’s holdings are 
concentrated, which, among other things, limits regulators’ ability to inform policy and supervision); 
Raphael Auer et al., Banking in the Shadow of Bitcoin? The Institutional Adoption of Cryptocurrencies 4, 9 
(Bank for Int’l Settlements, Working Paper No. 1013, May 2022), available at 
https://www.bis.org/publ/work1013.pdf (stating that data gaps, which can be caused by limited disclosure 

 

https://www.coingecko.com/en/global-charts
https://www.fsb.org/wp-content/uploads/P160222.pdf
https://www.fsb.org/wp-content/uploads/P160222.pdf
https://www.bis.org/publ/work1013.pdf


78 
 

activity is occurring within entities that are registered with the Commission and any of the SROs, 

or operating pursuant to the Regulation ATS exemption.203  For example, there are currently no 

special purpose broker-dealers authorized to maintain custody of crypto asset securities.204  This 

information limitation is also, in part, due to the significant trading activity in crypto asset 

securities that may be occurring in non-compliance with the federal securities laws.205 

 
requirements, risk undermining the ability for holistic oversight and regulation of cryptocurrencies); Int’l 
Monetary Fund, The Crypto Ecosystem and Financial Stability Challenges, in Global Financial Stability 
Report 41, 47 (Oct. 2021), available at https://www.imf.org/- 
/media/Files/Publications/GFSR/2021/October/English/ch2.ashx (finding that crypto asset service providers 
provide limited, fragmented, and, in some cases, unreliable data, as the information is provided voluntarily 
without standardization and, in some cases, with an incentive to manipulate the data provided). 

203  For a description of the requirements of the Regulation ATS exemption, see Proposing Release at section 
II.E.2. 

204  For background on 17 CFR 240.15c3-3 (“Rule 15c3-3”), as it relates to crypto asset securities, see U.S. 
Sec. & Exch. Comm’n, Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities (July 8, 
2019) (“Joint Staff Statement on Broker-Dealer Custody of Digital Asset Securities”), available at 
https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-
securities; Fin. Indus. Regul. Auth., SEC Staff No-Action Letter, ATS Role in the Settlement of Digital 
Asset Security Trades (Sept. 25, 2020), available at https://www.sec.gov/divisions/marketreg/mr-
noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf.  Staff reports, 
Investor Bulletins, and other staff documents (including those cited herein) represent the views of 
Commission staff and are not a rule, regulation, or statement of the Commission.  The Commission has 
neither approved nor disapproved the content of these staff documents and, like all staff statements, they 
have no legal force or effect, do not alter or amend applicable law, and create no new or additional 
obligations for any person.  The Commission issued a statement describing its position that, for a period of 
five years, special purpose broker-dealers operating under the circumstances set forth in the statement will 
not be subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have 
obtained and maintained physical possession or control of customer fully paid and excess margin crypto 
asset securities for purposes of Rule 15c3-3(b)(1) under the Exchange Act.  See Commission Statement on 
Custody of Digital Asset Securities by Special Purpose Broker-Dealers.  To date, no such special purpose 
broker-dealer registration applications have been granted by FINRA. 

205  See also FSOC Report, supra note 30, at 5, 87, 94, 97 (emphasizing the importance of the existing financial 
regulatory structure while stating that certain digital asset platforms may be listing securities while not in 
compliance with exchange, broker-dealer, or other registration requirements, which may impose additional 
risk on banks and investors and result in “serious consumer and investor protection issues”); Crypto-Assets 
Treasury Report, supra note 49, at 26, 29, 39, 40 (stating that issuers and platforms in the digital asset 
ecosystem may be acting in non-compliance with statutes and regulations governing traditional capital 
markets, with market participants that actively dispute the application of existing laws and regulations, 
creating risks to investors from non-compliance with, in particular, extensive disclosure requirements and 
market conduct standards); FSB Report, supra note 202, at 4, 8, 18 (stating that some trading activity in 
crypto assets may be failing to comply with applicable laws and regulations, while failing to provide basic 
investor protections due to their operation outside of or in non-compliance with regulatory frameworks, 
thereby failing to provide the “market integrity, investor protection or transparency seen in appropriately 
regulated and supervised financial markets”). 

https://www.imf.org/-%20/media/Files/Publications/GFSR/2021/October/English/ch2.ashx
https://www.imf.org/-%20/media/Files/Publications/GFSR/2021/October/English/ch2.ashx
https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-securities
https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-securities
https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf
https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf


79 
 

Because of this limited information, and because, as the Commission understands, the 

trading of crypto asset securities utilizes different technology and methods of operation than is 

utilized in markets for non-crypto asset securities, the Commission has a greater degree of 

uncertainty in characterizing the baseline for the crypto asset market than it does in 

characterizing the baseline for non-crypto asset securities. 

It is impossible to determine the true market turnover206 for crypto assets, because, 

among other reasons, the crypto asset market reportedly is characterized207 by rampant wash 

trading.208  The Commission does possess data on reported trades from many crypto asset 

platforms, but there is no reliable way to determine whether trades reported are actually between 

two different market participants or are the result of wash trading.  Estimates of how much of the 

total crypto asset market volume is attributable to wash trades vary but range as high as 95%.209  

The Commission believes that with such pervasive wash trading, any reported volume figures are 

significantly misleading.   

 
206  That is, the amount of crypto assets that actually change hands between distinct market participants. 
207  See, e.g., Lin William Cong, Xi Li, Ke Tang & Yang Yang, Crypto Wash Trading (Nat’l Bureau of Econ. 

Rsch., Working Paper No. 30783, Dec. 2022), available at https://www.nber.org/papers/w30783, Andrew 
Singer, Cleaning Up Crypto Exchange Wash Trading Will Take Global Regulation, Cointelegraph (July 29, 
2020), available at  https://cointelegraph.com/news/cleaning-up-crypto-exchange-wash-trading-will-take-
global-regulation (according to Gerald Chee, head of research at CoinMarketCap.com, “there is no way to 
tell if an exchange is inflating volume or not by merely looking at the volume they report” because “[t]he 
only way to detect ‘wash trades’ would require access to ‘account-ID’ data” and “only exchanges have 
access to these [data]”); see also, e.g., Friedhelm Victor & Andrea Marie Weintraud, Detecting and 
Quantifying Wash Trading on Decentralized Cryptocurrency Exchanges (Working Paper, Feb. 13, 2021), 
available at https://arxiv.org/pdf/2102.07001.pdf.  

208  The term wash trading refers to the practice of creating misleading trade reports and delivering such reports 
to the public, usually to deceive market participants into believing volume in a particular instrument is 
higher than it actually is.  This is often arranged by trading against one’s own limit orders, or buy swapping 
the instrument back and forth with a collaborator.     

209  See, e.g., Bitwise Asset Management, Presentation to the Securities and Exchange Commission (Mar. 19, 
2019), available at https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-
183434.pdf (stating that only 4.5% of approximately $6 billion of reported trading in Bitcoin was real).  
See also Javier Paz, More Than Half of All Bitcoin Trades are Fake, Forbes (Aug. 26, 2022), available at 
https://www.forbes.com/sites/javierpaz/2022/08/26/more-than-half-of-all-bitcoin-trades-are-
fake/?sh=471e51be6681.  

https://www.nber.org/papers/w30783
https://cointelegraph.com/news/cleaning-up-crypto-exchange-wash-trading-will-take-global-regulation
https://cointelegraph.com/news/cleaning-up-crypto-exchange-wash-trading-will-take-global-regulation
https://arxiv.org/pdf/2102.07001.pdf
https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-183434.pdf
https://www.sec.gov/comments/sr-nysearca-2019-01/srnysearca201901-5164833-183434.pdf
https://www.forbes.com/sites/javierpaz/2022/08/26/more-than-half-of-all-bitcoin-trades-are-fake/?sh=471e51be6681
https://www.forbes.com/sites/javierpaz/2022/08/26/more-than-half-of-all-bitcoin-trades-are-fake/?sh=471e51be6681


80 
 

Because such wash trading renders volume data unusable, the Commission is also unable 

to determine the share of trading that takes place on various types of platforms; or the amount of 

concentration in volume among various exchanges, including whether a given exchange has any 

legitimate volume at all. 

It is likewise impractical to determine market turnover of crypto assets using data on 

transfer of crypto assets between wallets that is available via public blockchains.  The 

Commission preliminarily believes that a direct analysis of blockchain data would be unable to 

reliably determine how many crypto assets are actually moving between different entities.  

Among other complications, the Commission understands that it is a common practice for a 

single entity participating in crypto asset trading to control multiple wallets and to move funds 

between those wallets.  There may be no way of determining that movement between such 

wallets represents the exchange of crypto assets between distinct entities.  Additionally, because 

transactions on the blockchain can be costly and slow, the Commission understands crypto assets 

to sometimes trade and settle off-chain, with only changes between public addresses eventually 

appended to the blockchain.  Thus, even if one could determine changes in ownership from 

transfers on the blockchain, that might not reflect all changes of ownership that occur on off-

chain platforms.   

a. Platforms in the Market for Crypto Assets 

The Commission is unable to reliably determine the amount of trading in crypto assets 

that takes place through platforms, or to quantify their share of the market for trading services in 

crypto assets.  This is due to the wash trading problem in the crypto asset market discussed81 
 

above.210  The Commission is also unable to reliably determine the number of platforms 

operating in the crypto asset market.211   

Some platforms may operate through the use of smart contracts.212  A smart contract may 

be designed to accept and integrate changes to its functionality, or it may be immutable.213  

Different designs are used to control changes to a smart contract’s functionality, including 

designs that enable only very specific entities to submit changes to the smart contract, as well as 

designs where a number of market participants receive tokens theoretically enabling them to vote 

on whether a change proposed by a developer is integrated or not.214  The Commission 

understands that these tokens, or other tokens, may also entitle their holders to additional 

benefits, which may include a claim on some portion of the transaction fees paid to the smart 

contract. 

 
210  See supra section V.B.1.  The difficulties in computing volume is also due in part to the significant amount 

of trading in crypto asset securities that may be occurring in non-compliance with federal securities laws.  
See supra section V.B.1. 

211  While the Commission is uncertain about the total number of platforms, some existing estimates of this 
number are over 200 for certain kinds of platforms, and over 250 for other kinds of platforms. See, e.g., 
Top Cryptocurrency Spot Exchanges, CoinMarketCap, available at 
https://coinmarketcap.com/rankings/exchanges/, Top Cryptocurrency Decentralized Exchanges, 
CoinMarketCap, available at https://coinmarketcap.com/rankings/exchanges/dex/; see also Bloomberg 
Letter II at 3; see supra section V.B.1. discussing difficulties in determining the size and scope of the crypto 
asset market generally, including issues related to foreign activity and non-compliance.  See infra section 
V.B.1.c (where the Commission has provided a rough estimate of the number of Communication Protocol 
Systems in the market for crypto asset securities). 

212  See supra note 15.  Smart contracts generally can be appended to a blockchain capable of running such 
programs by anyone with the ability to submit transactions to it.  The Commission understands that not all 
blockchains are initially designed with the intention of enabling smart contract functionality. 

213  By “immutable,” the Commission means that the smart contract cannot be changed through the processes 
that are part of the typical functioning of a blockchain.  The miners or validators of the blockchain, by 
deviating from such processes, can make alterations to the blockchain that alter interactions with 
“immutable” smart contracts.  See infra section V.C.2.c.i for related discussion. 

214  Such tokens are sometimes referred to as governance tokens. 

https://coinmarketcap.com/rankings/exchanges/


82 
 

i. Operations of Platforms 

The Commission understands that some platforms for crypto assets operate limit order 

books to facilitate trading among their customers.  Some operators of platforms also operate an 

affiliated so-called over-the-counter system or an RFQ system.215  Colocation options are 

possible at some platforms.216 

The Commission preliminarily believes that platforms can be a source of pricing 

information for the crypto assets that trade on those platforms.  Pricing information from off-

chain platforms is sometimes supplied to blockchains to serve as a reference price for various 

entities using smart contracts in their systems.217  

Some entities run limit order books on the blockchain, by utilizing smart contracts that 

accept limit orders, display them, and match limit orders with market orders.  In a system using a 

limit order book where all activity takes place on-chain, traders must pay for blockchain 

transactions for each message they wish to send to the limit order book, in addition to any fees 

the limit order book may charge.  This can increase the sources of transaction cost relative to a 

platform that does not run its limit order book on-chain.  Some entities with an on-chain 

component to their system may run their limit order books in whole or in part off-chain, with 

only final transactions being posted to the blockchain.  This may help both reduce total fees paid 

by users and issues of latency in updating on-chain records.   

 
215  See Elias Ahonen, What Really Goes on at a Crypto OTC Desk?, Cointelegraph (May 16, 2022), available 

at https://cointelegraph.com/magazine/explained-what-really-crypto-otc-desk/. 
216  See Anna Baydakova, High-Frequency Trading is Newest Battleground in Crypto Exchange Race, 

CoinDesk (July 8, 2019), available at https://www.coindesk.com/markets/2019/07/08/high-frequency-
trading-is-newest-battleground-in-crypto-exchange-race/.   

217  See, e.g., Andrei Anisimov & Luke Youngblood, Introducing the Coinbase Price Oracle, Coinbase (Apr. 
23, 2020), available at https://www.coinbase.com/blog/introducing-the-coinbase-price-oracle.  See also 
infra section V.B.1.a for further discussion of using price information from centralized platforms in DeFi 
settings. 

https://cointelegraph.com/magazine/explained-what-really-crypto-otc-desk/
https://www.coindesk.com/markets/2019/07/08/high-frequency-trading-is-newest-battleground-in-crypto-exchange-race/
https://www.coindesk.com/markets/2019/07/08/high-frequency-trading-is-newest-battleground-in-crypto-exchange-race/
https://www.coinbase.com/blog/introducing-the-coinbase-price-oracle


83 
 

An AMM is designed as an alternative to a limit order book.218  An AMM typically 

offers liquidity by exchanging one crypto asset for another,219 with the exchange rate typically 

set according to a pre-specified formula.  In some cases, this formula is set only by a 

mathematical function of the inventory the AMM possesses of each crypto asset in the pair,220 

while in other cases the AMM may incorporate information from an off-chain platform to help 

inform the exchange rate.  The inventory that an AMM uses to fill orders is typically supplied by 

market participants, and the details of the smart contract may specify compensation for supplying 

inventory (e.g., by dividing up transaction fees among the inventory suppliers).  In some cases, 

the AMM may permit the inventory suppliers to restrict the use of their liquidity to pre-specified 

price ranges.  

The Commission understands that while some platforms provide markets that enable the 

trading of crypto assets for dollars or other fiat currency, platforms for crypto assets typically 

offer markets in trading pairs as well.  This means that, for example, an order on a limit order 

book may offer to buy or sell units of a base asset in exchange for a quote asset with the price 

expressed in units of the quote asset.221  In addition, some platforms focus on facilitating trades 

where the transaction takes place entirely “on-chain.”  In this case, the platform is unable to 

 
218  AMMs typically make use of smart contracts to enable their functionality, and as a consequence may run 

on-chain to a significant degree.   
219  The inventory held by an AMM for providing liquidity is typically called a pool.  A single AMM protocol 

will typically have many pools, one for each combination of crypto asset trades offered.  For example, for 
crypto assets A, B, and C, a single AMM protocol might have a pool that offers to trade A for B and vice 
versa, another pool that offers to trade B for C and vice versa, and a third pool that offers to trade A for C 
and vice versa.  Some AMMs can have pools with more than two assets that permit trades in combinations 
of the assets in the pool.  For example, a pool might contain A, B, and C, and permit trades such as 
exchanging A and B for C. 

220  In the case where the AMM offers pools with more than two assets, the formula may be based on the 
amount of each asset held in the pool. 

221  See supra section II.A for additional discussion of pairs trading. 



84 
 

facilitate crypto asset markets using fiat currency.  Instead, such systems can only facilitate 

trading in crypto asset pairs.  

The Commission understands that the majority of platforms typically require crypto 

assets and fiat currency to be provided to the platform in advance of any trading activity.  This 

requirement can help ensure the successful completion of trades.   

A variety of market participants use platforms to trade crypto assets.  The Commission 

understands that retail investors are significant users of platforms.222  The Commission also 

understands that some platforms may also be used to fill the orders of institutional investors, and 

may have market makers participating as well.  

The Commission understands that the speed of processing on some platforms may be 

faster when compared to transfers on some blockchains or systems that involve blockchain 

processing as part of functionality,223 both of which are reliant on blockchain transactions to 

function.  The Commission understands that there is often a queue of transactions waiting to be 

appended to a blockchain, and transactions being sent to a trading platform running on that 

blockchain may have to wait in that queue to be processed. 

Trading using systems that involve sending information to a blockchain224 as a means of 

interacting with the system may expose the market participant to information leakage of a kind 

that is not present on platforms or New Rule 3b-16(a) Systems that do not require interacting 

 
222  See, e.g., Michel Rauchs, Apolline Blandin, Kristina Klein, Gina Pieters, Martino Recanatini & Bryan 

Zhang, 2nd Global Cryptoasset Benchmarking Study (Dec. 2018), available at 
https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-
benchmarking.pdf, showing that globally, retail investors are 70% of “exchange-only” crypto business 
users and 78% of “multi-segment” crypto businesses.  See also 2022 10-K, Coinbase (Feb. 21, 2023), 
available at https://www.sec.gov/Archives/edgar/data/1679788/000167978823000031/coin-20221231.htm 
showing that for one centralized platform, retail investors accounted for approximately 20% of trading 
volume in 2022. 

223  See infra section V.B.1.c. 
224  For example, sending a transaction to an AMM running on-chain. 

https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf
https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf


85 
 

through a blockchain.  The Commission understands that messages to be appended to a 

blockchain often end up in queue that is publicly viewable, which then exposes the market 

participant to information leakage.   

Furthermore, when trading on a system that runs some of its functionality on-chain, there 

is a risk of unexpected or undesired execution results.  Specifically, a market participant may 

send an order to a blockchain intending to interact with the on-chain portion of the system based 

on market conditions which will be altered by other transactions that are already queued but not 

yet processed.225 

Some ATSs, which have an active Form ATS on file with the Commission, specify in 

their Form ATS disclosures that they trade or intend to trade crypto asset securities.  

ii. Regulatory Baseline  

The provider of a platform that meets the current criteria of Rule 3b-16 of the Exchange 

Act is required to register as a national securities exchange or operate pursuant to the Regulation 

ATS exemption, which involves registering as a broker-dealer and complying with Regulation 

ATS.226  The regulatory requirements and the associated compliance costs for platforms that 

trade crypto asset securities vary according to whether they are regulated as a national securities 

exchange or ATS. 

 
225  The Commission understands that some platforms which have this risk permit transaction messages to set 

limits to help mitigate the risk of unexpected execution results.  Although the problem of messages already 
en route or queued for processing causing unexpected changes to a trading platform for other users is a 
problem on off-chain platforms as well, the Commission understands that the problem may be more severe 
on platforms which require interaction through a blockchain because the longer processing times can lead 
to larger queues.   

226  See supra section V.B.1.a.i, discussing ATSs that trade or intend to trade crypto asset securities.  There are 
no registered national securities exchanges which trade crypto asset securities.  See supra section V.B.1. 



86 
 

A platform that trades crypto asset securities could choose to register as a national 

securities exchange pursuant to sections 5 and 6 of the Exchange Act.227  The compliance costs 

associated with being a national securities exchange are generally significantly higher than those 

of being an ATS.  In contrast to an ATS, a national securities exchange, as an SRO, incurs 

compliance costs associated with, among other things, setting standards of conduct for its 

members, administering examinations for compliance with these standards, coordinating with 

other SROs with respect to the dissemination of consolidated market data, and generally taking 

responsibility for enforcing its own rules and the provisions of the Exchange Act and the rules 

and regulations thereunder.  Furthermore, under section 19(b) of the Exchange Act, a national 

securities exchange incurs compliance costs by filing any proposed changes to its rules with the 

Commission, which the Commission has the authority to approve or disapprove.228 

A platform that meets the current definition of an exchange and operates pursuant to the 

ATS exemption must comply with Regulation ATS, and incurs costs related to compliance with 

these requirements.  To operate under the exemption, an ATS must register as a broker-dealer229 

and comply with the filing and conduct obligations associated with being a registered broker-

 
227  Pursuant to section 6 of the Exchange Act, national securities exchanges must establish rules that generally: 

(1) are designed to prevent fraud and manipulation, promote just and equitable principles of trade, and 
protect investors and the public interest; (2) provide for the equitable allocation of reasonable fees; (3) do 
not permit unfair discrimination; (4) do not impose any unnecessary or inappropriate burden on 
competition; and (5) with limited exceptions, allow any broker-dealer to become a member.  Section 6(b) 
of the Exchange Act requires, among other things, that the national securities exchange be so organized and 
have the capacity to carry out the purposes of the Exchange Act and to comply and enforce compliance by 
its members, and persons associated with its members, with the federal securities laws and the rules of the 
exchange.  See section 6(b) of the Exchange Act.   

228  See generally section 19(b) of the Exchange Act. 
229  The broker-dealer operator controls all aspects of the operation of the ATS and is legally responsible for 

ensuring that the ATS complies with applicable federal securities laws and the rules and regulations 
thereunder, including Regulation ATS.  See NMS Stock ATS Adopting Release at text accompanying note 
663. 



87 
 

dealer, including membership in an SRO, such as FINRA,230 and compliance with the SRO’s 

rules.231  Upon becoming a broker-dealer, the operator of an ATS is subject to certain broker-

dealer requirements with respect to maintaining net capital, reporting, and recordkeeping.232  An 

ATS is subject to Commission examinations and FINRA examinations and surveillance, trade 

reporting obligations, and certain investor protection rules.233  An ATS is required to establish 

adequate written safeguards and written procedures234 to protect subscribers’ confidential trading 

information.235  Furthermore, an ATS is subject to certain reporting and disclosure requirements, 

as applicable.  Under Rule 301(b)(2) of Regulation ATS, an ATS that does not trade NMS stocks 

must file Form ATS.236  An ATS must file quarterly Form ATS-R to report to the Commission, 

among other things, trading volume, securities traded, and a list of subscribers that were 

participants during the relevant quarter.237  An ATS is subject to recordkeeping and record 

preservation requirements under Rules 302 and 303 of Regulation ATS, respectively.    

 
230  See section 15(b)(8) of the Exchange Act. 
231  See Regulation ATS Adopting Release, supra note 3, at 70903. 
232  Registered broker-dealers would be subject to requirements under certain Exchange Act rules, such as Rule 

15c3-1, Rule 17a-1, Rule 17a-3, Rule 17a-4, and Rule 17a-5.    
233  Under the federal securities laws and FINRA rules, registered broker-dealers (e.g., broker-dealer operators 

of ATSs) are subject to, among other things: (1) various disclosure and supervision obligations; (2) anti-
money laundering obligations (including suspicious activity reporting); (3) FINRA OTC trade reporting 
requirements, including requirements to maintain membership in, or maintain an effective clearing 
arrangement with a participant of, a clearing agency registered under the Exchange Act; and (4) 
Commission examinations and FINRA examinations and surveillance of members and markets that its 
members operate. 

234  These written safeguards and written procedures must include, among other things:  limiting access to the 
confidential trading information of subscribers to those employees of the ATS who are operating the 
system or responsible for its compliance with these or any other applicable rules; and implementing 
standards controlling employees of the ATS trading for their own accounts. 

235  See 17 CFR 242.301(b)(10); NMS Stock ATS Adopting Release, supra note 7, section VI.  
236  Under Rule 304 of Regulation ATS, NMS Stock ATSs are required to file public Form ATS-N (instead of 

filing Form ATS), which is subject to a Commission review and effectiveness process. 
237  See Rule 301(b)(9); Form ATS-R. 



88 
 

In addition, an ATS that trades in crypto asset securities that are corporate debt securities, 

and meets certain volume thresholds, is required to comply with the Fair Access Rule and Rule 

301(b)(6) of Regulation ATS.  The requirements of Rule 301(b)(6) are similar to, but with less 

benefits and with significantly less costs than, the requirements of Regulation SCI.238  Such an 

ATS must be a member of FINRA, and would accordingly be required to report to the Trade 

Reporting and Compliance Engine (TRACE) transactions in corporate bonds.239 

An ATS that trades crypto asset securities that are municipal securities is similarly 

required to comply with the Fair Access Rule and with Rule 301(b)(6) of Regulation ATS if it 

meets certain volume thresholds.  Additionally, the broker-dealer operator of such an ATS must 

register with the Municipal Securities Rulemaking Board (MSRB) and accordingly is required to 

report municipal bond trades to the MSRB’s Real-Time Transaction Reporting System 

(RTRS).240 

A platform that operates as an NMS Stock ATS and trades in crypto asset securities that 

are NMS stocks is required to file public Form ATS-N.  Such an ATS must comply with the 

requirements of Regulation SCI and the Fair Access Rule if it meets the corresponding volume 

thresholds.  Additionally, because trades in NMS stocks that are transacted off-exchange must be 

reported to one of three FINRA Trade Reporting Facilities, such an NMS Stock ATS would have 

the reporting obligation in most cases where it handles the execution of the trade.  Such an ATS 

 
238  The scope and requirements of Rule 301(b)(6) are narrower than those of Regulation SCI.  For example, 

Rule 301(b)(6) of Regulation ATS applies to a narrower set of systems, as compared to Regulation SCI.  
Rule 301(b)(6) of Regulation ATS applies only to systems that support order entry, order routing, order 
execution, transaction reporting, and trade comparison, which is narrower than the definition of SCI 
system.  Also, Rule 301(b)(6) does not require ATSs to maintain a backup facility, whereas Regulation SCI 
includes such a requirement.   

239  See Proposing Release at 15604 n.871 and accompanying text. 
240  See id. at 15608. 



89 
 

that receives or originates orders in Eligible Securities241 is required to report any Reportable 

Event242 to the Consolidated Audit Trail.  

A platform that is an ATS and trades in crypto asset equity securities that are not NMS 

stocks is required to comply with Regulation SCI and the Fair Access Rule if it meets certain 

volume thresholds, be a member of FINRA, and comply with associated reporting obligations. 

AMMs243 that meet the definition of a dealer or government securities dealer under 

sections 3(a)(5) and 3(a)(44) of the Exchange Act are subject to the requirements applicable to 

dealers under federal securities laws and FINRA rules.244  These AMMs would incur compliance 

costs associated with broker-dealer requirements discussed in section V.B.1.a.ii. 

Regulated platforms do not offer trading in non-cash markets for crypto assets in which 

one of the assets is a security and the other one is not a security.245   

 
241  The CAT NMS Plan is a national market system plan approved by the Commission pursuant to Section 

11A of the Exchange Act and the rules and regulations thereunder.  See Securities Exchange Act Release 
No. 79318 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016).  The CAT NMS Plan and subsequent 
amendments to the Plan are available at https://catnmsplan.com/about-cat/cat-nms-plan.  Section 1.1 of the 
CAT NMS Plan defines Eligible Securities as “(a) all NMS Securities; and (b) all OTC Equity Securities,” 
where OTC Equity Securities are defined as any equity security, other than an NMS Security, subject to 
prompt last sale reporting rules of a registered national securities association and reported to one of such 
association’s equity trade reporting facilities.”  This includes both OTC Equity Securities and transactions 
in Restricted Equity Securities effected pursuant to Securities Act Rule 144A. 

242  According to Section 1.1 of the CAT NMS Plan, “Reportable Event” includes, but is not limited to, the 
original receipt or origination, modification, cancellation, routing, execution (in whole or in part) and 
allocation of an order, and receipt of a routed order. See CAT NMS Plan, supra note 241. 

243  Some AMMs may operate as single dealer platforms.  A single dealer platform that meets  the requirement 
of existing Exchange Act Rule 3b-16(b)(2) and Rule 3b-16(b)(2) as proposed to be amended, would be 
excluded from the Exchange Act Rule 3b-16(a) and thus not fall within the definition of exchange.  In 
addition, the proposed amendments to Rule 3b-16 do not change the registration obligations of a person 
that meets the definition of a dealer or government securities dealer under sections 3(a)(5) and 3(a)(44) of 
the Exchange Act.   

244  The Commission encourages commenters to review the Commission’s proposal, “Further Definition of “As 
a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer,” Securities 
Exchange Act Release No. 94524 (Mar. 28, 2022), 87 FR 23054 (Apr. 18, 2022) to determine whether it 
might affect their comments on this Reopening Release. 

245  There is a significant amount of trading in crypto asset securities that may be occurring in non-compliance 
with federal securities laws.  See supra section V.B.1. 



90 
 

b. New Rule 3b-16(a) Systems in the Market for Crypto Assets 
Securities 

The Commission understands that some amount of trading in crypto asset securities is 

facilitated through New Rule 3b-16(a) Systems.246  The Commission lacks information on the 

entities involved providing New Rule 3b-16(a) Systems in the market for crypto asset securities, 

and consequently, is uncertain as to the precise number of such entities.  Nevertheless, the 

Commission is providing a rough estimate that there are 15-20 New Rule 3b-16(a) Systems 

trading crypto asset securities.247  The Commission requests comment on the number of New 

Rule 3b-16(a) Systems in the market for crypto asset securities.  The Commission lacks data on 

the share of trades in crypto asset securities that are conducted in this way, and requests 

comment on this issue.   

The Commission is uncertain as to the range of specific communication protocols used 

for trading crypto assets.248  The Commission requests comment on the types of protocols used 

in trading crypto assets. 

Some entities provide New Rule 3b-16(a) Systems that may run part of the system on-

chain (for example, by using smart contracts).  A New Rule 3b-16(a) System that utilizes such 

technology may possess some of the same features as other systems using that technology 

described in section V.B.1.a.   

 
246  See supra section V.B.1.  Additionally, one commenter states that the proposed amendments to the 

definition of exchange, specifically the phrasing “to include systems that offer the use of non-firm trading 
interest and communication protocols to bring together buyers and sellers of securities,” could be read to 
encompass “unhosted protocols,” which the Commission understands to refer to DeFi platforms.  See 
Delphi Digital Letter at 11; see also LeXpunK Letter at 3. 

247  The Commission received comments stating that we had not included an estimate of the number of crypto 
asset security market participants that would be included in the amended definition of exchange.  See 
GDCA Letter II at 6, Delphi Digital Letter at 11, McHenry/Huizenga Letter at 2.   

248  In the Proposing Release, the Commission discussed common kinds of protocols and their economic 
significance in their respective markets, see, e.g., Proposing Release sections VIII.B.1, VIII.B.2.b, 
VIII.B.3.b, VIII.B.4.b, VIII.B.5.d, VIII.B.6.b, and VIII.B.7. 



91 
 

The Commission understands that when running a New Rule 3b-16(a) System that 

involves on-chain technology, the actual negotiation portion of the system (e.g. the RFQ 

functions) may be run “off-chain,” that is, without using the blockchain for computation and 

communication.  Once negotiation is finished, the transaction may then be completed using 

blockchain-based systems.   

It is also possible that some New Rule 3b-16(a) Systems may be run entirely on-chain.  

For example, there may be smart contracts that enable the sending of RFQs, responses to the 

RFQ, and finalizing of transactions all through communicating with a set of smart contracts by 

sending messages to the blockchain. 

The Commission preliminarily believes that New Rule 3b-16(a) Systems with on-chain 

components to their system generally facilitate trades that are not cash-based.  That is, the trades 

exchange one crypto asset security for another crypto asset.  The Commission preliminarily 

believes that it is possible that New Rule 3b-16(a) Systems that do not use any on-chain elements 

in their systems may also facilitate trades that are non-cash based. 

New Rule 3b-16(a) Systems do not meet the current definition of exchange under Rule 

3b-16, and therefore are not currently required to register as national securities exchanges or 

comply with Regulation ATS.249 

c. Other Methods of Trading in Crypto Assets 

Market participants may transact in crypto assets via bilateral voice trading or electronic 

chat messaging.250  The Commission understands that such interactions may be with a market 

maker in crypto assets, or with some other market participant.  Such methods of trading permit 

 
249  See supra section V.B.1.a.ii describing the rules of Regulation ATS, as well as rules applicable to national 

securities exchanges. 
250  See supra section V.B.1. 



92 
 

negotiation on price and size.  The Commission lacks information on current crypto asset market 

practice, and requests comment on this issue. 

Bilateral voice trading may provide flexibility to traders and reduce information leakage.  

For these reasons, the Commission preliminarily believes it may be a useful method for trading 

crypto assets in large blocks.  The Commission requests comment on the role of bilateral voice 

trading in the market for crypto assets. 

d. Competition for Crypto Asset Trading Services 

The various platforms available for trading crypto assets, as well as New Rule 3b-16(a) 

Systems, compete to attract order flow.  The Commission preliminarily believes that market 

participants seeking liquidity in crypto assets may prefer either one particular platform or method 

of crypto asset trading or multiple platforms or methods.  A single order may be split and filled 

using the different methods.  It is also possible that some methods may be used more than others 

in certain segments of market participants.   

Because New Rule 3b-16(a) Systems are not currently subject to the same regulation as 

organizations, associations, or groups of persons that meet the existing definition of “exchange” 

under Rule 3b-16, they often trade pairs, which can include a combination of securities and non-

securities.  This may give New Rule 3b-16(a) Systems a competitive advantage over platforms 

that currently meet regulatory requirements for exchanges.   

Some of the methods for trading crypto asset securities involve platforms that are 

currently subject to regulation as an ATS or national securities exchange.251  New Rule 3b-16(a) 

Systems, in contrast, are not subject to such regulation.  This may have an impact on competition 

 
251  See supra section V.B.1.a discussing such platforms and the regulations to which they are subjected.  Also, 

see supra section V.B.1.a.i, discussing ATSs that trade or intend to trade crypto asset securities.  Today, 
there are no registered national securities exchanges that trade crypto asset securities.  See supra section 
V.B.1. 



93 
 

for order flow between these two groups of platforms.  For example, platforms that are ATSs or 

national securities exchanges may offer the benefits of investor protections associated with these 

regulations to customers in ways that New Rule 3b-16(a) Systems do not.  It is also the case that 

the compliance costs for such regulations may burden current ATSs and national securities 

exchanges in a way that disadvantages them in competing with New Rule 3b-16(a) Systems. 

C. Economic Effects 

The Commission discussed the economic effects of the Proposed Rules on general 

activity involving securities in the Proposing Release.  In this section, the Commission discusses 

the economic effects of the Proposed Rules on activity involving crypto asset securities.  

The Commission is relying on the analysis in the Proposing Release to form the basis for 

its discussion of the effects of the Proposed Rules for systems trading crypto asset securities.252  

This is because the Commission believes that New Rule 3b-16(a) Systems that trade crypto asset 

securities are broadly similar in their functions to functions of other New Rule 3b-16(a) Systems.  

The following sections include discussion of the extent to which we believe these effects may 

deviate from those discussed in the Proposing Release for the market for crypto asset securities.  

Throughout the discussion in this Reopening Release, the Commission has a greater degree of 

uncertainty in its analysis of the costs that the Proposed Rules would impose on market 

participants for crypto asset securities than it did in its discussion of costs for non-crypto asset 

securities.  This is because the Commission has less data on the functioning of the market for 

crypto asset securities.253   

 
252  See id. 
253  See supra section V.B.1. 



94 
 

As discussed in the Proposing Release,254 a New Rule 3b-16(a) System could choose to 

register as an exchange rather than choose to comply with the Regulation ATS exemption.  The 

Commission believes that New Rule 3b-16(a) Systems that trade crypto asset securities would 

likely elect to register as a broker-dealer and comply with Regulation ATS because the 

regulatory costs associated with registering and operating as an exchange would be higher than 

those associated with registering as a broker-dealer and complying with Regulation ATS.255  

One commenter agrees with the Commission that any entity captured as a New Rule 3b-

16(a) System “would likely prefer to be regulated as an ATS as opposed to an exchange.”256 

1. Benefits 

The Commission believes that the benefits detailed in the Proposing Release257 would 

accrue in broadly the same manner to market participants who trade in crypto asset securities as 

they would to market participants who trade in the securities discussed in the Proposing Release.  

This is because the Commission believes that New Rule 3b-16(a) Systems that trade crypto asset 

securities are broadly similar in their functions to functions of other New Rule 3b-16(a) Systems.  

However, throughout the discussion in this Reopening Release, the Commission has a greater 

degree of uncertainty in its analysis of the benefits that the Proposed Rules would provide to 

market participants in the market for crypto asset securities than it did in its discussion of 

benefits for non-crypto asset securities.  This is because the Commission has less data on the 

functioning of the market for crypto asset securities.258   

 
254  See Proposing Release at 15618. 
255  See id. at 15586. 
256  See LeXpunK Letter at 14. 
257  See id. at 15618. 
258  See supra section V.B.1. 



95 
 

Certain benefits discussed in the Proposing Release apply only to certain asset classes: 

the Commission believes that if any current or future crypto asset security falls into one of those 

classes, then those benefits would likely apply to the participants in the market for that crypto 

asset security as well. 

a. Enhancement of Regulatory Oversight and Investor Protection 

As discussed fully in the Proposing Release, the Proposed Rules would enhance 

regulatory oversight and investor protection by extending the requirements related, among other 

things, to broker-dealer registration, transaction reporting, safeguarding subscribers’ confidential 

trading information, recordkeeping and reporting under Regulation ATS, providing certain 

information on Form ATS-R to the Commission, and filing public Form ATS-N , to New Rule 

3b-16(a) Systems trading in securities of the applicable asset classes.259  Of these benefits, some 

are associated with rules that apply to all securities, and the rest are associated with rules that 

apply only to securities of specific asset classes.  The Commission believes that benefits 

associated with rules that apply to all securities would accrue to market participants trading 

crypto asset securities in a manner similar to the description in the Proposing Release, and to a 

similar extent. The Commission additionally believes that benefits associated with rules applying 

only to specific asset classes would accrue to market participants trading crypto asset securities 

of the appropriate asset type, again in a similar manner and to a similar extent as that described 

in the Proposing Release.  

 
259 See id. at 15618-19.  See also supra note 181 and accompanying text (explaining that the Commission 

continues to assume that, under the Proposed Rules, Newly Designated ATSs will choose to register as 
broker-dealers and comply with the conditions of Regulation ATS, rather than register as national securities 
exchanges, and therefore the costs analyzed here assume that such systems will not register as national 
securities exchanges). 



96 
 

b. Reduction of Trading Costs and Improvements to Execution 

Quality 

As discussed fully in the Proposing Release, the Proposed Rules would help enhance 

operational transparency, reduce trading costs, and improve execution quality for market 

participants by requiring public disclosure of Form ATS-N and applying the Fair Access Rule to 

certain ATSs. 260  The Commission believes that benefits associated with these rules would 

accrue to market participants trading crypto asset securities of the appropriate asset class, in the 

same manner and to the same extent discussed in the Proposing Release.  However, because 

some New Rule 3b-16(a) Systems involve systems which run with an on-chain component,261 

and therefore may operate using code that is, at least in part, publicly viewable, it is possible that 

the benefit of Form ATS-N disclosures may be reduced for such systems.  However, because this 

code is not disclosed in a standardized or human-readable form, the Commission believes that 

this reduction of impact may not be significant.   

c. Enhancement of Price Discovery and Liquidity 

As discussed fully in the Proposing Release, the Proposed Rules would help enhance the 

price discovery process and liquidity in securities markets by applying broker-dealer registration 

requirements of Regulation ATS, Regulation SCI, and the Capacity, Integrity, and Security Rule 

(i.e., Rule 301(b)(6) of Regulation ATS) to certain New Rule 3b-16(a) Systems.262  The 

Commission believes that benefits associated with these rules would accrue to market 

 
260  See id. at 15620-21. 
261  For example, the system may be run in part by smart contracts deployed on a blockchain.  See supra section 

V.B.1.a for additional discussion of such systems. 
262  See id. at 15621-22. 



97 
 

participants trading crypto asset securities of the appropriate asset class, in the same manner and 

to the same extent discussed in the Proposing Release.  

d. Electronic Filing Requirements 

As discussed fully in the Proposing Release, the Proposed Rules would benefit market 

participants by improving the usability, accessibility, and reliability of the new disclosures, by 

requiring a structured data language and a publicly accessible filing location for the applicable 

required disclosures.263  Of these benefits, some are associated with rules that apply to all 

securities, and the rest are associated with rules that apply only to securities of specific asset 

classes.  The Commission believes that benefits associated with rules that apply to all securities 

would accrue to market participants trading crypto asset securities in a manner similar to the 

description in the Proposing Release, and to a similar extent.  The Commission additionally 

believes that benefits associated with rules applying only to specific asset classes would accrue 

to market participants trading crypto asset securities of the appropriate asset class, again in the 

same manner and to the same extent discussed in the Proposing Release. 

However, because some New Rule 3b-16(a) Systems involve systems which run with an 

on-chain component,264 and therefore may operate using code that is, at least in part, publicly 

viewable, it is possible that the benefit of Form ATS-N disclosures may be reduced for such 

systems.  However, because this code is not disclosed in a standardized or human-readable form, 

the Commission believes that this reduction of impact may not be significant. 

 
263  See id. at 15623. 
264  For example, the system may be run in part by smart contracts deployed on a blockchain.  See supra section 

V.B.1.a for additional discussion of such systems. 



98 
 

2. Costs 

The Commission received comments on the Proposing Release stating that the 

Commission had not considered the costs of the Proposed Rules to New Rule 3b-16(a) Systems 

that trade crypto asset securities.265  In this section the Commission is supplementing the analysis 

of costs provided in the Proposing Release with additional analysis that details the extent and 

manner in which the costs discussed in the Proposing Release would apply to New Rule 3b-16(a) 

Systems that trade crypto asset securities.   

The Commission is relying on the analysis in the Proposing Release to form the basis for 

its discussion of the costs of Proposed Rules for systems trading crypto asset securities.266  This 

is because the Commission believes that the functioning of New Rule 3b-16(a) Systems that 

trade crypto asset securities are broadly similar to the functioning of other New Rule 3b-16(a) 

Systems discussed in the Proposing Release.  The Commission preliminarily believes that in 

some cases the costs of compliance may be higher for New Rule 3b-16(a) Systems in the market 

for crypto asset securities than for other New Rule 3b-16(a) Systems.  This is because in some 

cases the market for crypto asset securities utilizes different technology and methods of 

operation267 than is utilized in markets for non-crypto asset securities.  In addition, throughout 

the discussion in this Reopening Release, the Commission has a greater degree of uncertainty in 

its analysis of the costs that the Proposed Rules would impose on market participants than it did 

in its discussion of costs for non-crypto asset securities.  This is because the Commission has less 

data on the functioning of the market for crypto asset securities.268   

 
265  See GDCA Letter II at 6; Crypto Council Letter at 4; McHenry/Huizenga Letter at 2; Coinbase Letter at 2; 

a16z Letter at 7. 
266  See id. 
267  Such different technology may include, for example, smart contracts. 
268  See supra section V.B.1. 



99 
 

In addition, the Commission has received comments stating that entities that trade crypto 

asset securities may incur different compliance costs than entities that trade traditional securities.  

One commenter states that the analysis provided in the Proposing Release were based only on 

“traditional broker-dealer business,” adding that they were not aware of any broker-dealers that 

had successfully registered under the Commission’s framework for registering “digital-asset-

only broker-dealers.”269  There are also costs that are unique to New Rule 3b-16(a) Systems that 

trade crypto asset securities.  These costs are also the result of the use of different technology and 

methods of operation in some instances.  These costs are discussed in the sections below as 

applicable.  The Commission invites comment on the costs of the Proposed Rules for market 

participants in the market for crypto asset securities. 

a. Compliance Costs 

Table V.1 provides estimates for the aggregate compliance costs for New Rule 3b-16(a) 

Systems that trade crypto asset securities.  These aggregate costs reflect an estimate of 20 

additional affected New Rule 3b-16(a) Systems that were not included in the estimates provided 

in the Proposing Release, which is the upper end of the Commission’s estimate of the number of 

affected systems.  The Commission is uncertain as to how precise these estimates are because we 

lack sufficient data on crypto asset securities.270   

In both Table V.1 and the following subsections, the Commission is relying on the 

analysis in the Proposing Release to form the basis for its discussion of costs.  The Commission 

preliminarily believes that actual costs may be higher than these estimates and discussions 

express, due to the type of technology and operations utilized in trading crypto asset securities.  

 
269  See ADAM Letter II at 14. 
270  See supra section V.B.1. 



100 
 

Because it lacks certain data, the Commission is unable to provide an estimate as to how much 

higher costs may be, but preliminarily believes that these estimates and discussions provide a 

useful lower bound.   

Table V.1: Total Implementation Costs and Other Compliance Costs Affecting Entities 

that Trade Crypto Asset Securities Not Included in the Proposing Release 

Rule Compliance Action Aggregate Initial 
Costs 

Aggregate 
Ongoing Costs 

Reg ATS, 301(b)(1) 
 

Form BD filing 
Form ID filing 
Other compliance costs 
(non-PRA based) 

$18,000a 
$1,000b 

$6,320,000c 

$6,000d 
- 

$1,154,000e 

Reg ATS, 301(b)(2) Form ATS filing $128,000f $30,000g 
Reg ATS, 301(b)(9) Form ATS-R filing - $130,000h 
Reg ATS, 301(b)(10) Written safeguards and 

procedures to protect 
subscribers’ confidential 
trading information 

$64,000i $20,000j 

Reg ATS, 302 Recordkeeping - $68,000k 
Reg ATS, 303 Record preservation - $2,000l 
Total  $6,531,000 $1,410,000 
a This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(1)’s Form BD filing 

requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

b This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(1)’s Form ID filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

c This cost figure is obtained by summing the other initial implementation costs (non-PRA based) associated with 
Rule 301(b)(1) for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

d This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(1)’s Form BD filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

e This cost figure is obtained by summing the other ongoing implementation costs (non-PRA based) for 20 New 
Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing Release. See Proposing 
Release at Table VIII.8. 

f This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(2)’s Form ATS filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

g This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(2)’s Form ATS filing 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

h This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(9)’s Form ATS-R 
filing requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the 
Proposing Release. See Proposing Release at Table VIII.8.101 
 

i This cost figure is obtained by summing the initial implementation costs of Rule 301(b)(10)’s requirement for 
written safeguards and procedures to protect subscribers’ confidential trading information, for 20 New Rule 3b-
16(a) Systems that trade crypto asset securities not included in the Proposing Release. See Proposing Release at 
Table VIII.8. 

j This cost figure is obtained by summing the ongoing implementation costs of Rule 301(b)(10)’s requirement for 
written safeguards and procedures to protect subscribers’ confidential trading information, for 20 New Rule 3b-
16(a) Systems that trade crypto asset securities not included in the Proposing Release. See Proposing Release at 
Table VIII.8. 

k This cost figure is obtained by summing the ongoing implementation costs of Rule 302’s recordkeeping 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

l This cost figure is obtained by summing the ongoing implementation costs of Rule 303’s record preservation 
requirement for 20 New Rule 3b-16(a) Systems that trade crypto asset securities not included in the Proposing 
Release. See Proposing Release at Table VIII.8. 

 

Commenters express concern that the Proposed Rules would include certain crypto asset 

security entities that the Commission had not considered, which would increase costs beyond 

what was estimated in the Proposing Release due to the increase in the number of affected 

entities.271  The Commission is now including a rough estimate that the Proposed Rules would 

include 15-20 New Rule 3b-16(a) Systems that trade crypto securities that were not included in 

the Proposing Release,272 along with the associated costs.   

One commenter expresses concern that “persons who may merely write open-source 

‘communications protocol’ code or publish information about the contents of communications 

systems which they do not control” would be included by the amended definition of exchange.273  

Another commenter expresses similar concerns that “DeFi developers” would be included by the 

amended definition of exchange.274  Another commenter expresses similar concerns that 

“persons who ‘make available’ AMMs or interfaces for utilizing AMMs may now be required by 

 
271  See DeFi Education Fund Letter at 9, 17; Crypto Council Letter at 5; Blockchain Association Letter II at 7; 

LeXpunK Letter at 11; Chamber Letter at 5. 
272  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 

and the Commission’s uncertainty regarding this estimate). 
273  See Delphi Digital Letter at 6. 
274  See DeFi Education Fund Letter at 3, 9. 



102 
 

the SEC to register those AMMs as ATSs or securities exchanges.”275  Another commenter 

expresses concern that the definition of exchange, as proposed to be amended, might “capture 

developers working with all manner of protocols, front end systems, and smart contracts.”276  

Two commenters include smart contract code developers and publishers, blockchain miners and 

validators, providers of liquidity to AMMs, website maintainers, and blockchain client software 

developers as examples of persons they believe might be inadvertently captured by the definition 

of exchange, as proposed to be amended.277  Another commenter lists social networking 

websites, peer-to-peer messaging applications, business communication platforms, financial 

information systems, blockchain technology nodes, and smart contracting platforms as examples 

of common retail communication platforms that might be required to register as an exchange 

under the Proposed Rules, adding that the proposal was likely to make “everyone involved in any 

securities-related communications an exchange or ATS.”278  Another commenter states that “any 

broker-dealer or non-broker-dealer that has systems related to trading or communicating trading 

interest in securities” might be included by the Proposed Rules.279  This commenter also lists 

validators, developers of smart contracts, and website operators as examples of entities that 

might be included by the Proposed Rules.280  Another commenter states that the Proposed Rules 

might cause “developers of code and smart contracts related to a Decentralized Protocol, or the 

 
275  See Letter from Murray B. Wells, Attorney/Partner, Wells Associates, PLLC, dated Apr. 18, 2022 (“Wells 

Letter”) at 2. 
276  See LeXpunK Letter at 13. 
277  See Wells Letter at 2; LeXpunK Letter at 14. 
278  See DARLA, GBC, and Global DCA Letter at 7. 
279  See a16z Letter at 7. 
280  See id. at 14. 



103 
 

maintainers of online websites that merely enable access to a Decentralized Protocol” to be 

captured by the definition of exchange, as proposed to be amended.281 

The Commission believes that the entities these commenters describe would only be an 

exchange if they constitute, maintain, or provide a market place or facility that meets the 

applicable criteria, and would only incur compliance costs in connection with their activities that 

constitute, maintain, or provide that market place or facility.   

The Commission acknowledges that there may be circumstances in which the miners or 

validators of a blockchain could incur costs under the Proposed Rules, and the Commission 

solicits comment on any such costs.282 

i. Implementation Costs 

New Rule 3b-16(a) Systems that would be newly subject to the requirements of 

Regulation ATS would incur implementation costs associated with, among other things, written 

safeguards and procedures to protect subscribers’ confidential trading information, 

recordkeeping, record preservation, and Form ATS-R. 283  The Commission estimates that there 

are 15-20 additional New Rule 3b-16(a) Systems not included in the Proposing Release that trade 

crypto asset securities.284   

Furthermore, New Rule 3b-16(a) Systems that trade NMS stocks would incur higher 

implementation costs due to the heightened requirements of filing Form ATS-N compared to 

New Rule 3b-16(a) Systems that would file Form ATS.285  To the extent that any crypto asset 

 
281  See Blockchain Association Letter II at 6. 
282  See supra notes 75-80 and accompanying text, section II.B (discussing groups of persons under the 

definition of exchange); infra section V.C.2.c.i. 
283  See id. at 15627. 
284  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 

and the Commission’s uncertainty regarding this estimate). 
285  See id. 



104 
 

securities are NMS stocks, New Rule 3b-16(a) Systems that trade them would incur these higher 

costs.  The Commission estimates that no286 New Rule 3b-16(a) Systems currently trade crypto 

asset securities that are NMS stocks. 

Current ATSs and New Rule 3b-16(a) Systems that trade neither NMS stocks nor 

government securities would incur implementation costs associated with re-filing or filing the 

modernized Form ATS.  Furthermore, all New Rule 3b-16(a) Systems would incur 

implementation costs to file the revised electronic Form ATS-R.  Current NMS Stock ATSs 

would incur implementation costs associated with amending revised Form ATS-N.  The 

Commission estimates that 15-20 287 New Rule 3b-16(a) Systems currently trade crypto asset 

securities that are not NMS stocks that were not included in the Proposing Release, and no288 

New Rule 3b-16(a) Systems currently trade crypto asset securities that are NMS stocks.  To the 

extent that a current ATS or New Rule 3b-16(a) System trades in crypto asset securities 

generally or crypto asset NMS stock specifically, associated costs described in the Proposing 

Release would be a lower bound on costs incurred.289  

Significant NMS Stock ATSs and ATSs that trade corporate debt securities, municipal 

securities, or equity securities that are not NMS stocks are subject to the Fair Access Rule.  The 

Commission estimates that no290 New Rule 3b-16(a) Systems that trade crypto asset corporate 

 
286  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  
287  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 

and the Commission’s uncertainty regarding this estimate). 
288  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  
289  See id.; Table VIII.8. 
290  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  



105 
 

debt securities, municipal securities, NMS stocks, or equity securities that are not NMS stocks 

would be subject to the Fair Access Rule. 

Significant ATSs that trade corporate debt securities or municipal securities are subject to 

Rule 301(b)(6).  The Commission estimates that no291 New Rule 3b-16(a) Systems currently 

trade corporate debt or municipal securities that are crypto asset securities and would meet the 

threshold of Rule 301(b)(6).  To the extent that such an entity exists, the Commission believes 

that the implementation costs per entity presented in the Proposing Release would be a lower 

bound on costs incurred.292 

In the Proposing Release, the Commission discussed estimates of initial PRA burdens for 

new SCI entities and ongoing PRA burdens for all SCI entities.293  To the extent that any 

significant New Rule 3b-16(a) System trades in crypto asset securities that are (i) NMS stocks or 

(ii) equity securities that are not NMS stocks, and would therefore be subject to Regulation SCI, 

the Commission preliminarily believes that the PRA burdens discussed in the Proposing Release 

would be a lower bound on costs incurred.  The Commission estimates that no294 New Rule 3b-

16(a) Systems that trade crypto asset securities that are NMS stocks or equity securities that are 

not NMS stocks would meet the applicable thresholds to be subject to Regulation SCI.    

As discussed in the Proposing Release,295 the Commission believes that the fixed 

implementation costs associated with Rule 301(b)(9) and (10), Rule 302, and Rule 303 would 

 
291  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  
292  See id. 
293  See id. 
294  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  
295  See Proposing Release at 15628. 



106 
 

represent a larger fraction of revenue for a small (measured in trading volume) ATS relative to 

that for a large ATS.  To the extent that New Rule 3b-16(a) Systems trade crypto asset securities, 

and are therefore subject to these costs, the Commission expects the fixed costs to fall 

disproportionately on such lower-volume New Rule 3b-16(a) Systems.  

As discussed in the Proposing Release,296 the Commission believes that the fixed 

implementation costs of developing internal processes to ensure correct and complete reporting 

on Form ATS-N would represent a larger fraction of revenue for a small (measured in trading 

volume) ATS relative to that for a large ATS.  To the extent that New Rule 3b-16(a) Systems 

trade crypto assets that are NMS stocks, and are therefore subject to these costs, the Commission 

expects the fixed costs to fall disproportionately on smaller such New Rule 3b-16(a) Systems.  

However, as in the Proposing Release, the Commission expects that smaller New Rule 3b-16(a) 

Systems that are not operated by multi-service broker-dealer operators and that generally do not 

engage in other brokerage or dealing activities in addition to their ATSs would likely incur lower 

implementation costs, because certain sections of Form ATS-N, as proposed to be amended, 

would not be applicable to these New Rule 3b-16(a) Systems.  

The Commission also believes that the implementation costs associated with Rule 304 

would vary across New Rule 3b-16(a) Systems that are NMS Stock ATSs depending on the 

complexity of the ATS and the services that it offers.  As discussed in the Proposing Release, the 

Commission believes that less complex ATSs and ATSs that offer fewer services would incur 

lower implementation costs due to requiring fewer burden hours to complete their Forms ATS-

 
296  See id. 



107 
 

N.297  The Commission estimates that no298 New Rule 3b-16(a) Systems currently trade crypto 

assets that are NMS stocks.  To the extent that any such New Rule 3b-16(a) System exists, the 

Commission believes that this would also be the case for such systems. 

ii. Costs Associated with Broker-Dealer Requirements 

Under proposed Rule 301(b)(1), New Rule 3b-16(a) Systems that are non-broker-dealers 

(i.e., non-broker-dealer-operated New Rule 3b-16(a) Systems) and trade crypto assets securities 

would be subject to broker-dealer registration requirements.  Such an entity would incur costs 

associated with broker-dealer registration, which include costs related to registering with the 

Commission as broker-dealers, becoming members of an SRO, maintaining broker-dealer 

registration and SRO membership, and certain broker-dealer requirements with respect to 

maintaining net capital, reporting, and recordkeeping.  The Commission estimates that roughly 

15-20 299 such New Rule 3b-16(a) Systems that trade crypto asset securities not included in the 

Proposing Release exist.  The Commission believes that the costs300 discussed in the Proposing 

Release301 for such entities would be a lower bound on the costs incurred. 

Furthermore, under section 4(a)(4) of the Securities Act,302 a broker-dealer is required to 

conduct a reasonable inquiry into the facts surrounding the proposed sale of a security by its 

 
297  See id. at 15628. 
298  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  
299  See supra section V.B.1.c (discussing New Rule 3b-16(a) Systems in the market for crypto asset securities, 

and the Commission’s uncertainty regarding this estimate). 
300  As stated in the Proposing Release, the Commission lacks information that would allow it to provide 

estimates on certain restructuring related costs for a non-broker-dealer-operated Communication Protocol 
System that trades crypto asset securities.  Likewise, the Commission is unable to estimate the costs of 
broker-dealer requirements with respect to maintaining net capital, reporting, and recordkeeping, as it lacks 
information on how affected entities might change their current business structures upon registering as a 
broker-dealer. 

301  See Proposing Release at 15628-29. 
302  See 15 U.S.C. 77d(a)(4). 



108 
 

customer to determine whether the sale of the security would violate section 5, such as if there is 

no registration statement in effect with the Commission as to the offer and sale of the security, or 

there is no applicable exemption from the registration provisions available to the customer.  

Upon registration as a broker-dealer, an entity could face liability under section 5 of the 

Securities Act for facilitating sales of securities on behalf of its customers that would violate 

section 5.  To the extent a substantial portion of this entity’s business is in the sales of such 

securities, the Proposed Rules would result in a significant loss in revenue for the entity. 

One commenter states that the Commission’s estimates of compliance costs, provided in 

the Proposing Release, omitted the costs of joining FINRA, which is a requirement for becoming 

a registered broker-dealer.303  The commenter characterizes these costs as representing “the 

lion’s share” of the time and effort needed to become a broker-dealer.  The Commission did 

discuss these costs in the Proposing Release,304 and believes that the estimates provided there 

provide a useful characterization, notwithstanding the possibility that some costs may be higher 

for entities that trade crypto asset securities.305 

The Commission believes that a New Rule 3b-16(a) System not operated by a broker-

dealer would not incur compliance costs associated with registering as a broker-dealer and 

becoming a member of an SRO (e.g., FINRA) if it has a broker-dealer affiliate.306  The 

Commission believes that this would also apply to a New Rule 3b-16(a) System that trades 

crypto asset securities.  A broker-dealer affiliate that is adding ATS or New Rule 3b-16(a) 

System operations would incur additional ongoing costs associated with maintaining FINRA 

 
303  See Crypto Council Letter at 6. 
304  See Proposing Release at Table VIII.8 and note 1120. 
305  See supra section V.C.2.a. 
306  See Proposing Release at 15629. 



109 
 

membership if adding trading operations increases revenue, the number of registered persons or 

branch offices, trading volume, or expands the scope of brokerage activities.  Furthermore, a 

broker-dealer affiliate that is adding ATS or New Rule 3b-16(a) System operations could incur 

additional costs associated with maintaining adequate net capital level, reporting, and 

recordkeeping depending on the changes in business structure of the broker-dealer.  As in the 

Proposing Release,307 the Commission is unable to provide estimates on these additional costs; 

however, the Commission estimates that there are no308 New Rule 3b-16(a) Systems not operated 

by a broker-dealer that are affiliated with an existing broker-dealer.  

iii. Costs Associated with the Ineffectiveness Declaration 

In addition to the implementation costs associated with filing and amending Form 

ATS-N, the Commission preliminarily believes that the proposed ability for the Commission to 

declare an initial Form ATS–N or Form ATS–N amendment ineffective could result in direct 

costs for New Rule 3b-16(a) Systems that are NMS Stock ATSs.309  However, the Commission 

estimates that no310 New Rule 3b-16(a) Systems currently trade crypto asset securities that are 

NMS stocks.  To the extent that such a New Rule 3b-16(a) System exists, it would incur these 

costs.  However, the Commission believes that there would not be a substantial burden imposed 

in connection with resubmitting an initial Form ATS-N or a Form ATS-N amendment or from an 

ineffective declaration in general.311  The costs of an ineffectiveness declaration would 

encourage New Rule 3b-16(a) Systems trading in these crypto asset securities to initially submit 

 
307  See id. at 15629. 
308  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1. 
309  See id. 
310  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  
311  See Proposing Release at 15630 (citation omitted). 



110 
 

a more accurate and complete Form ATS-N and amendments thereto, which would reduce the 

likelihood that they are declared ineffective.312  Additionally, New Rule 3b-16(a) Systems that 

trade NMS stocks, including those that are crypto asset securities, would also be able to continue 

operations pending the Commission’s review of their initial Form ATS-N.  However, if after 

notice and opportunity for hearing, the Commission declares an initial Form ATS-N filed by 

such a New Rule 3b-16(a) System ineffective, the ATS would be required to cease operations 

until an initial Form ATS-N is effective. 

iv. Costs Associated with the Fair Access Rule 

The Commission preliminarily believes that complying with the Fair Access Rule could 

result in compliance costs (non-PRA based) for New Rule 3b-16(a) Systems that trade NMS 

stocks (including NMS Stock ATSs that would no longer be excluded from Fair Access 

compliance under Rule 301(b)(5)(iii) as proposed),313 equity securities that are not NMS stocks, 

corporate debt securities, or municipal securities.314  If a New Rule 3b-16(a) System must change 

fee structures, order interaction procedures, trading protocols, or access provisions and adapt 

their operating model due to the Fair Access Rule, it would incur costs related to changing 

business operations.315  To the extent that a New Rule 3b-16(a) System trades in crypto asset 

securities that fall into any of the above-mentioned categories, the Commission believes that it 

would incur costs related to these changes as described in the Proposing Release.  As in the 

Proposing Release, the Commission lacks data that would be used to quantify the costs related to 

 
312  See id. 
313  Today, based on public Form ATS-N filings, no NMS Stock ATS operates pursuant to this exclusion.   
314  See id. 
315  See id. 



111 
 

these changes.  The Commission estimates that no316 New Rule 3b-16(a) Systems currently trade 

crypto asset securities that are NMS stocks, equities that are not NMS Stocks, corporate debt, or 

municipal securities. 

As discussed in the Proposing Release,317 the Proposed Rules would aggregate volume 

across affiliated ATSs in calculating the fair access volume thresholds.  This would mean 

affiliate ATSs that otherwise do not meet the relevant volume thresholds may be subject to the 

Fair Access Rule.  As discussed above, if ATSs must adapt their operating models as a result of 

being subject to the Fair Access Rule, those ATSs would incur costs related to changing business 

operations.  The Commission estimates that no current affiliate ATS that trades NMS stocks, 

equity securities that are not NMS stocks, corporate debt securities, or municipal securities, that 

are crypto asset securities, and does not already currently meet the fair access volume thresholds 

would meet the thresholds if volume is aggregated across affiliated ATSs. 

v. Costs Associated with Rule 301(b)(6) 

As discussed in the Proposing Release,318 in addition to the implementation costs 

associated with reporting outages and recordkeeping under the proposed Rule 301(b)(6), the 

Commission preliminarily believes that significant New Rule 3b-16(a) Systems that trade 

corporate debt securities or municipal securities could incur compliance costs (non-PRA based) 

to ensure adequate capacity, integrity, and security with respect to those systems that support 

order entry, order routing, order execution, transaction reporting, and trade comparison.  To the 

extent that a New Rule 3b-16(a) System trades in crypto assets that are corporate debt securities 

 
316  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1. 
317  See Proposing Release at 15630-31. 
318  See id. at 15631. 



112 
 

or municipal securities, and does not currently meet the standards under the proposed rule, they 

would incur compliance costs as described in the Proposing Release.  The Commission lacks 

information that would enable it to reasonably estimate these costs, but believes that the 

compliance costs associated with Rule 301(b)(6) would be significantly less than those of 

Regulation SCI.319  Furthermore, the Commission estimates that none320 of the New Rule 3b-

16(a) Systems trading crypto asset securities would meet the applicable volume requirements and 

be subject to the requirements of Rule 301(b)(6). 

vi. Costs Associated with Regulation SCI 

New Rule 3b-16(a) Systems that meet certain volume thresholds and trade crypto asset 

securities that are (i) NMS stock or (ii) equity securities that are not NMS stocks, would incur 

compliance costs (non-PRA based costs) as SCI entities, including both initial and ongoing costs.  

The Commission believes that, to the extent that there exist New Rule 3b-16(a) Systems trading 

crypto asset securities that are equity securities, including NMS stocks, the costs described in the 

Proposing Release321 would be a lower bound on cost incurred.  The Commission estimates no322 

New Rule 3b-16(a) Systems that trade crypto asset securities would be subject to Regulation 

SCI.  

The Commission also believes that some New Rule 3b-16(a) Systems’ participants 

required to participate in the testing of business continuity and disaster recovery plans would 

 
319  See id. at 15631 n.1138 and accompanying text. 
320  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1. 
321  See id.; section VIII.C.2.a.vi. 
322  The Commission is uncertain as to the accuracy of this estimate because we lack sufficient data on the full 

set of securities traded in crypto asset markets.  See supra section V.B.1.  See also Securities Exchange Act 
Release No. 97143 (Mar. 15, 2023), available at https://www.sec.gov/rules/proposed/2023/34-97143.pdf.  
The Commission encourages commenters to review that Regulation SCI proposal to determine whether it 
might affect their comments on this Reopening Release. 

https://www.sec.gov/rules/proposed/2023/34-97143.pdf


113 
 

incur Regulation SCI-related connectivity costs.  The Commission believes that $10,000 apiece 

would be a lower bound on such costs.323  However, because the Commission estimates that no 

New Rule 3b-16(a) Systems that trade crypto asset securities would be subject to Regulation 

SCI, no such participants would incur these costs. 

The Commission believes that the costs to comply with Regulation SCI discussed above 

would also fall on third-party vendors employed by New Rule 3b-16(a) Systems to provide 

services used in their SCI systems. 324  To the extent that a vendor provides services to an ATS 

that trades crypto asset securities that are equity securities, including NMS stocks, it would incur 

these costs.  However, because the Commission estimates that no New Rule 3b-16(a) Systems 

that trade crypto asset securities would be subject to Regulation SCI, no such vendors would 

incur these costs. 

b. Indirect Costs 

The Commission believes that the Proposed Rules could result in indirect costs for 

market participants and certain New Rule 3b-16(a) Systems that trade crypto asset securities.325    

i. General Indirect Costs 

In the following discussion, the Commission is relying on the analysis in the Proposing 

Release to form the basis for our discussion of these costs.  The Commission preliminarily 

believes that actual costs may be higher than these discussions express, due to the technology 

and operations utilized in trading crypto asset securities.  The Commission is unable to provide a 

 
323  See id. 
324  See id. at 15632. 
325  See infra section V.C.3 for discussions about the economic effects of the Proposed Rules specifically 

pertaining to competition, efficiency, and capital formation. 



114 
 

discussion as to how much higher costs may be, but preliminarily believes that the discussions 

below provide a useful lower bound.   

The public disclosure requirements of Form ATS-N under the proposal could generate 

indirect costs for some subscribers by causing New Rule 3b-16(a) Systems that trade NMS stock 

to stop sharing information that they might currently offer to only some subscribers.326  Form 

ATS-N would require NMS Stock ATSs to publicly disclose any platform-wide order execution 

metrics that they share with any subscriber.  To avoid publicly disclosing this information, an 

ATS might stop sharing the information with subscribers.  The trading costs of subscribers that 

currently use this information to help make trading decisions would likely increase if the 

information is no longer available to them.  To the extent that a subscriber trades using a New 

Rule 3b-16(a) System that trades crypto assets that are NMS stocks and receives such 

information, the subscriber would incur these indirect costs.  As discussed in the Proposing 

Release, the Commission anticipates that this risk might be low due to commercial incentives 

that may induce ATSs to continue disclosing this information.327 

The Commission believes that the public disclosure of Form ATS-N would generate 

indirect costs, in the form of transfers, for some subscribers of New Rule 3b-16(a) Systems that 

trade NMS stock who might currently have more information regarding some ATS features, such 

as order priority and matching procedures, than other subscribers. 328  The public disclosure of 

these features would reduce informed subscribers’ information advantage over other subscribers 

on such New Rule 3b-16(a) Systems and increase their trading costs.  In this regard, the 

Commission recognizes that this effect would be a transfer to those subscribers who would 

 
326  See id. 
327  See id. 
328  See id. 



115 
 

receive the proposed information, from those subscribers who currently exclusively receive such 

information.  To the extent that a New Rule 3b-16(a) System trades in crypto asset securities that 

are NMS stocks, such transfers might occur among their subscribers. 

Some New Rule 3b-16(a) Systems that trade NMS stock would experience indirect costs 

from the public disclosure of Form ATS-N to the extent that this form would reveal information 

to competitors.329  If such a New Rule 3b-16(a) System in part relies on certain operational 

characteristics (e.g., order types, trading functionalities) to attract customer order flow and 

generate trading revenues, it is possible that the public disclosure of these characteristics in Form 

ATS-N would make it easier for other trading venues to adopt the operational characteristics, 

which would lower trading volume and reduce revenue of the disclosing New Rule 3b-16(a) 

System.  Such costs to the disclosing entity would constitute transfers to competing ATSs rather 

than a net cost to the market.  To the extent that a New Rule 3b-16(a) System trades any crypto 

assets that are NMS stocks, it might experience these transfers described in the Proposing 

Release.  Furthermore, because some New Rule 3b-16(a) Systems involve systems which run 

with an on-chain component,330 and therefore may operate using code that is, at least in part, 

publicly viewable, it is possible that the adverse impact of these disclosures may be reduced, for 

such systems.  However, because this code is not disclosed in a standardized or human-readable 

form, the Commission believes that this reduction of impact may not be significant. 

The Commission believes that the risk of these transfers is low because it is not likely the 

responsive information to Form ATS-N, as proposed to be amended, would include detailed 

enough information regarding operational facets such that the public disclosure of the 

 
329  See id. 
330  For example, the system may be run in part by smart contracts deployed on a blockchain.  See supra section 

V.B.1.a for additional discussion of such systems. 



116 
 

information would allow another ATS to replicate the functionality to the extent it would 

adversely affect the competitive position of the disclosing ATS in the market.331 

The Commission believes that New Rule 3b-16(a) Systems that trade NMS stocks 

(including NMS Stock ATSs that would no longer be excluded from Fair Access compliance 

under Rule 301(b)(5)(iii) as proposed), equity securities that are not NMS stocks, corporate debt 

securities, or municipal securities could indirectly experience costs in the form of lost revenue if 

they meet or exceed the Fair Access Rule thresholds and need to alter their business model to 

comply with the requirements of the Fair Access Rule.332  To the extent that any crypto asset 

securities fall into these categories, the Commission believes that a New Rule 3b-16(a) System 

that trades in them, including NMS Stock ATSs that trade crypto asset securities that are NMS 

stocks and would no longer be excluded from Fair Access compliance under Rule 301(b)(5)(iii) 

as proposed, might incur these costs discussed in the Proposing Release.  

As discussed in the Proposing Release,333 the Commission believes that market 

participants could incur indirect costs related to New Rule 3b-16(a) Systems that trade NMS 

stocks (including NMS Stock ATSs that would no longer be excluded from Fair Access 

compliance under Rule 301(b)(5)(iii) as proposed), equity securities that are not NMS stocks, 

corporate debt securities, or municipal securities, being subject to the Fair Access Rule.  To the 

extent that a New Rule 3b-16(a) System (including NMS Stock ATSs that would no longer be 

excluded from Fair Access compliance under Rule 301(b)(5)(iii) as proposed) trades in crypto 

assets that fall into any of the above categories of security, market participants that trade on such 

 
331  See id. 
332  See id. 
333  See Proposing Release at 15633. 



117 
 

platforms might experience transfer costs through the same chain of events described in the 

Proposing Release. 

Compared to larger and more established New Rule 3b-16(a) Systems trading in crypto 

assets, it is possible that younger New Rule 3b-16(a) Systems rely more on providing catered 

services, including more advantageous access, to specific clients or a clientele, in order to grow 

their businesses.334  If being subject to the Fair Access Rule prohibits these New Rule 3b-16(a) 

Systems from doing this, these New Rule 3b-16(a) Systems could restrict trading on their 

systems when they are close to meeting the volume thresholds under the Fair Access Rule.335  As 

in the Proposing Release, to the extent that the market for trading services is competitive, the 

Commission believes this may not result in a significant increase in trading costs for market 

participants, because the order flow that was being sent to those New Rule 3b-16(a) Systems 

would likely be absorbed and redistributed amongst other New Rule 3b-16(a) Systems or other 

venues.336  However, if a New Rule 3b-16(a) System that is the sole provider of a niche service 

limits the trading in certain securities to avoid being subject to the Fair Access Rule, it could be 

more difficult for some market participants to find an alternative trading venue for that niche 

service, which would result in a larger increase in trading costs.337  To the extent that a New Rule 

3b-16(a) System trades in crypto assets that are securities, the Commission expects these costs to 

apply to such a New Rule 3b-16(a) System as described in the Proposing Release. 

 
334  Id. 
335  Id. 
336  Id. 
337  Id. 



118 
 

As discussed in the Proposing Release,338 the Proposed Rules apply certain aggregate 

volume thresholds to the Fair Access Rule in the markets for corporate debt and municipal 

securities and equity securities, which could also cause market participants to incur similar 

indirect costs.  If the aggregate volume of ATSs operated by a common broker-dealer or operated 

by affiliated broker-dealers approaches the Fair Access volume thresholds, then the operators 

could restrict trading in one or more securities on their systems in order to avoid being subject to 

the requirements of the Fair Access Rule.339  Market participants could also incur indirect costs 

from the Proposed Rules to apply certain aggregate volume thresholds to the Fair Access Rule if 

it causes a broker-dealer or affiliated broker-dealers that operate multiple ATSs to shut down one 

or more of their smaller ATSs in order to avoid triggering the Fair Access threshold.340  This 

could cause market participants that subscribed to one of the shutdown platforms to incur search 

costs to find another venue to trade on.341  To the extent that there exist crypto assets that fall 

into one of the above asset classes, and are traded on ATSs, the Commission believes that these 

indirect costs could apply as discussed in the Proposing Release. 

As discussed in the Proposing Release,342 the Commission believes that market 

participants could incur indirect costs related to applying Regulation SCI to New Rule 3b-16(a) 

Systems in the market for crypto asset equity securities and applying Rule 301(b)(6) to New 

Rule 3b-16(a) Systems in the market for crypto asset corporate debt securities or municipal 

securities.  If such a New Rule 3b-16(a) System is close to satisfying the volume thresholds of 

 
338  Id. 
339  Id. 
340  Id. 
341  Id. 
342  Id. 



119 
 

Regulation SCI or Rule 301(b)(6), it could limit the trading in certain securities on its systems to 

stay below the volume thresholds in order to avoid being subject to Regulation SCI or Rule 

301(b)(6).343  As discussed above, the Commission believes that in general this would not 

necessarily lead to higher trading costs, but to the extent this occurs for a New Rule 3b-16(a) 

System that is the sole provider of a niche service, some market participants would incur higher 

trading costs.  

Additionally, in order to stay below the volume thresholds under Regulation SCI or Rule 

301(b)(6), a New Rule 3b-16(a) System could break itself up into smaller New Rule 3b-16(a) 

Systems.344  If this results in its subscribers changing their administrative and operational 

procedures (e.g., means of access, connectivity, order entry), the subscribers would incur costs 

associated with making those administrative and operational changes to utilize the ATS(s), or 

otherwise incur search costs to find another venue to trade.345  To the extent that there exist 

crypto assets that fall into one of the applicable asset classes, and are traded on New Rule 3b-

16(a) Systems, the Commission believes that these costs could apply as discussed in the 

Proposing Release.346 

ii. Costs Associated with the Proposed Functional-Test-Based 

Exchange Definition 

The proposed functional-test-based exchange definition could result in increased legal 

costs for market participants.  Specifically, the Proposed Rules could cause market participants 

to engage in a more thorough and expansive compliance review of any changes in operations out 

 
343  Id. 
344  Id. 
345  Id. 
346  See id. 



120 
 

of concern that a large range of activities might meet the proposed definition of exchange.  This 

approach could also increase uncertainty about the application of the Proposed Rules, which in 

turn may further increase legal costs. 

In addition, market participants would decrease and slow down the development of new 

products and technologies.  Such development may depend on the ability to rapidly develop and 

deploy new systems.  The need for more extensive compliance review, uncertainty about the 

application of the Proposed Rules,347 and concerns that new systems may inadvertently meet the 

definition of exchange348 could make such a process more difficult.  Market participants may 

come to regard some areas of new product development as inherently risky, because of the 

potential for regulatory costs, and decide to stop engaging in them. 

One commenter states that the uncertainty caused by the expanded definition of exchange 

in the Proposed Rules “…is concerning and likely to stifle innovation.”349  Another commenter 

states that the uncertainty of exposure to enforcement actions might stifle innovation.350  While 

the Commission does not believe that innovation will be impossible under the Proposed Rules, 

we acknowledge that there could be less innovation as a result of the uncertainty and compliance 

costs associated with the broad formulation of the Proposed Rules.  

 
347  One commenter agrees with assessment.  See DARLA, GBC, and Global DCA Letter at 6 (stating that the 

broad language in the Proposed Rules “…would likely cause chilling effects and deter further innovation 
and activity among early-stage technology companies due to uncertainty over which technology services 
would satisfy the new and expanded definition of exchange.”)  

348  One commenter expresses such concerns, stating “[w]e have significant concern that a lack of a specific 
definition for such a broadly explained term will cause ongoing confusion and, as a result, increase the 
potential for a market participant to inadvertently run afoul of the obligations set forth in the Proposals.”  
See Chamber Letter at 4. 

349  See McHenry/Huizenga Letter at 2. 
350  See LexPunK Letter at 2.121 
 

iii. Costs Associated with Discontinuation of Non-Security-for-

Security Pairs Trading 

Many crypto asset securities are not traded in exchange for fiat currencies but are instead 

traded for other crypto assets.  To the extent that a New Rule 3b-16(a) System enables the 

trading of crypto asset securities for crypto assets that are not securities, that entity may also 

incur the cost of having to stop enabling such trades, and the resulting loss of revenue.  Because 

pairs trading is common in crypto asset markets, this cost may be significant for some New Rule 

3b-16(a) Systems.  These costs may be mitigated if affected New Rule 3b-16(a) Systems are able 

to arrange for a fiat currency market for the relevant crypto asset security, and a separate fiat 

currency market in a separate entity for the non-security crypto asset, so that it can arrange for a 

pair of trades to take place that closely replicates the desired trade.  For systems that wish to 

complete the transaction entirely on-chain, such arrangements are likely to be impossible, and 

this mitigation would therefore not apply to them. 

Furthermore, because existing national securities exchanges and ATSs currently do not 

facilitate trading between crypto asset securities and non-security crypto assets, the loss of New 

Rule 3b-16(a) Systems as platforms for engaging in such trades may be a significant cost for 

market participants in crypto asset markets.  The inability to complete such trades using New 

Rule 3b-16(a) Systems could require market participants to switch to other means of trading, 

such as bilateral voice trading.  To the extent such trading methods are not the market 

participant’s preferred method, this would increase trading costs.  Market participants may be 

able to mitigate these costs if New Rule 3b-16(a) Systems are able to provide cash markets for 

the relevant crypto assets, and arrange for a pair of trades that would closely replicate the desired 

exchange.   



122 
 

c. Costs for Platforms Using Certain Technologies 

The Commission preliminarily believes that there may be costs associated with 

complying with the Proposed Rules for New Rule 3b-16(a) Systems that would perform 

exchange activities using certain technologies that are used in the market for crypto asset trading 

services.351  The Commission is unable to provide an exact estimate or quantitative range for 

these compliance costs, because the Commission lacks sufficient detail about the variety of 

platforms whose systems use these technologies, or their options to comply.  In the following 

subsections the Commission provides a range of compliance costs related to responsibilities for 

compliance, as well as a discussion of the factors associated with certain technologies that might 

increase the compliance costs of certain specific requirements.  It is possible that operating a 

system that uses these technologies to perform exchange activities under the Proposed Rules in a 

manner that complies with applicable regulations could significantly reduce the extent to which 

the system is “decentralized” or otherwise operates in a manner consistent with the principles 

that the crypto asset industry commonly refer to as “DeFi.” 

i. Initial Costs of Compliance 

The Commission preliminarily believes that some New Rule 3b-16(a) Systems that trade 

crypto asset securities may incur greater initial costs to come into compliance, due to these 

systems’ use of certain technologies that, for example, allow them to automate portions of their 

operations using smart contracts deployed on an underlying blockchain.352  The Commission 

 
351  One commenter on the Proposing Release states that due to the “decentralized and autonomous nature of 

Decentralized Protocols, and the lack of an intermediary who could serve as a broker-dealer affiliate,” the 
Proposed Rules would impose significant burdens that had not been considered.  See Blockchain 
Association Letter II at 8.  The Commission believes that the general costs described throughout section 
V.C.2 as applicable, and the specific costs discussed in this subsection, provide the necessary consideration 
of such burdens. 

352  These technologies include, but are not limited to, system architectures that permit RFQ systems to be run 
partly or wholly on-chain using smart contracts. 



123 
 

believes that there are a range of such technologies, or a range of systems’ use of such 

technologies, that would entail differing initial costs, and has prepared a description of two 

scenarios that we preliminarily believe covers the range of costs likely to occur.353  These 

scenarios consist of an example of a system that would likely have the lowest possible costs of 

compliance for a system using such technologies, and an example of a hypothetical system in 

which the cost of compliance is likely to be the highest possible.  The Commission preliminarily 

believes that the initial compliance costs of the typical New Rule 3b-16(a) System that performs 

exchange activities using such technologies would fall in between the costs associated with these 

two examples.  The Commission requests comment on the issue of compliance costs of New 

Rule 3b-16(a) Systems that operate in this manner. 

At the low end of the range, the Commission preliminarily believes a New Rule 3b-16(a) 

System that performs exchange activities using these technologies may incur similar costs to 

those of a New Rule 3b-16(a) System that does not use such technologies.354  This lower bound 

is based on consideration of a hypothetical system using such technologies in a way that the 

Commission believes would tend to present the least difficulty in complying with the Proposed 

Rules.  This low-cost hypothetical case consists of a New Rule 3b-16(a) System that would 

automate a portion of its operations using a set of smart contracts355 that it developed and 

deployed itself; would have the sole right and means356 to make alterations to the deployed smart 

contracts; would receive any fees charged by the smart contracts, as well as any fees collected in 

 
353  Providing an estimate corresponding to every hypothetically possible design of systems using such 

technologies would be impractical.   
354  See supra section V.C.2.a and V.C.2.b covering these costs. 
355  See supra section V.B.1.a discussing smart contracts for DeFi platforms and their management. 
356  Possession of the sole means to make alterations to a smart contract could consist of a design in which 

changes may be made to the smart contract’s code by using a unique private key, and where that key is in 
the sole possession of the firm. 



124 
 

connection to the service through other means; and would maintain all off-chain operations that 

might be necessary to run the service. 

In this case, the Commission believes the responsibility to bring such a New Rule 3b-

16(a) System into compliance may fall to this firm and that under such circumstances, the cost of 

compliance would be similar to that of a New Rule 3b-16(a) System that does not automate any 

portion of its operations using a smart contract, as detailed in sections V.C.2.a and V.C.2.b 

above.  In particular, any alterations that may need to be made to the smart contracts connected 

with the system in order to bring it into compliance with the relevant regulations could be 

implemented in a manner similar to alterations made to software generally, due to the firm’s 

control over those smart contracts. 

The Commission preliminarily believes that a New Rule 3b-16(a) System that performs 

its exchange activities in part using smart contracts, but that is not set up in the manner described 

above, may have significantly higher costs of compliance than the lower bound.  The 

Commission is unable to provide a quantitative estimate of an upper bound because the 

Commission lacks information on the costs of the activities which may be necessary for more 

complex systems using such technology to come into compliance.357  The Commission 

preliminarily believes that a reasonable case, in which the highest possible compliance costs 

would result, would be a New Rule 3b-16(a) System that performs exchange activities in part 

using smart contracts, but in which control over changes to the smart contracts is given to a 

 
357  In particular, the Commission does not have examples of systems using such technology that are registered 

with the Commission as an exchange or as an ATS.  See supra section V.B.2. 



125 
 

token-based voting mechanism, which may use governance tokens as discussed above,358 and 

where the tokens are dispersed among a large number359 of investors.   

In this scenario, the Commission believes that the holders of the governance tokens, or 

other tokens that carry voting rights, may bear the responsibility of ensuring the compliance of 

the system.  In such a scenario, the Commission believes that the holders of the relevant tokens 

could choose to form an organization or association, or to designate a member of a group of 

persons, which would be responsible for undertaking the activities necessary to bring the New 

Rule 3b-16(a) System into compliance with Regulation ATS.   

The costs to produce such an organization or association, or to designate a member of a 

group of persons may involve the effort required on the part of the relevant token holders to 

coordinate and reach agreement on the design of such an organization,360 legal expenses 

associated with the design and legal registration of the entity, or costs involved with designating 

a member of the group of persons responsible for ensuring compliance.  If the relevant tokens of 

a smart contract entitle their holders to a share of transaction fees paid to the smart contract, or 

some other form of return, these expenses could be paid using such returns; otherwise, the 

holders of the tokens themselves may have to supply the necessary funds.   

 
358  See supra note 15. 
359  “Large” could mean millions of retail investors, each with some share in the vote determined by the 

number of tokens they hold.  One prominent DeFi platform has approximately 755 million outstanding 
tokens, each with a share in governance votes. See Curve DAO, CoinGecko, available at 
https://www.coingecko.com/en/coins/curve-dao-token.  The Commission understands that, while protocols 
may have a large number of outstanding governance tokens, control of those tokens (or their voting rights) 
may be held by a limited number of entities. 

360  The Commission believes that this may be a difficult undertaking, given the potentially large number of 
individuals and entities that would have to reach agreement.  Such entities may also lack the sophistication 
or resources required to easily navigate the process of forming such an organization or association and 
coming into compliance. 



126 
 

Also, because changes to the smart contracts would require a vote, the Commission 

preliminarily believes that the process of implementing any changes to the smart contracts that 

are required for compliance may be more costly than in the case where a single firm holds all 

control.  

It is possible that, when it becomes necessary for the holders of relevant tokens to form 

an organization or association, or to designate a member of a group of persons, some of those 

holders might choose to sell their tokens to avoid taking on regulatory burdens, which the 

Commission expects would ultimately result in there being fewer holders of the governance 

tokens. The Commission does not have the data it would need to estimate the extent to which this 

would happen, but to the extent that this process significantly reduces the number of holders of a 

smart contract’s governance tokens, the Commission expects that the costs of compliance for 

such a smart contract would fall between the two extremes already discussed.  

The Commission believes that there is a third configuration of smart contract 

management which may have costs either inside the range described above or outside this range.  

This is the configuration entailed by a New Rule 3b-16(a) System that would automate all of its 

operations via smart contracts that are immutable.  This immutability makes it impossible to alter 

the code of a smart contract using the typical processes of a public blockchain once it has been 

deployed, even by the entity responsible for its deployment and responsible for bringing such a 

system into compliance.  However, the Commission understands that it is possible for the miners 

or validators of a smart contract’s underlying blockchain to effect a change to a blockchain 



127 
 

through, for example, a fork that would impact interactions with the immutable smart contract, 

and that this capacity has already been used on rare occasions.361   

In this case, the costs would depend on the specific factual circumstances, including, 

among other considerations, the activities performed by persons that, for example, could fund or 

code changes to the blockchain, or validate or mine the transactions, or some combination 

thereof.362  It is possible that in this case costs may exceed the upper bound described above.363  

The Commission is uncertain as to the exact size of the costs that may be involved and requests 

comment on the issue.  

In addition, the Commission preliminarily believes that in a circumstance in which only 

validators or miners are able to stop effectuating transactions that trigger the automated 

operations of a smart contract, the validators or miners may discontinue processing transactions 

resulting from trading interest matched by the New Rule 3b-16(a) System.  In the event that 

validators or miners choose to discontinue processing such transactions, there may be costs to 

market participants associated with arranging to direct their trading interest to other venues.  If 

instead miners or validators incur costs by choosing to continue processing transactions of such a 

system, the Commission preliminarily believes that they may pass on some of these costs to 

users, as described above.364  It may also be the case that even if the miners or validators as a 

whole opt to effect a change to a blockchain or smart contracts, some miners or validators could 

choose to cease processing transactions of a blockchain. 

 
361  See, e.g., https://spectrum.ieee.org/ethereum-blockchain-forks-to-return-stolen-funds, discussing how 

miners of a major public blockchain “forked” the chain to change an undesired result. 
362  See supra notes 75-80 and accompanying text. 
363  The Commission preliminarily believes that costs may be higher for reasons that might include technical 

difficulties that would not be encountered when bringing a Rule 3b-16(a) System based on a mutable smart 
contract into compliance. 

364  See supra section V.C.2.a. 

https://spectrum.ieee.org/ethereum-blockchain-forks-to-return-stolen-funds


128 
 

The Commission is not aware of a specific example of a New Rule 3b-16(a) System 

which automates all of its operations by means of immutable smart contracts.  However, the 

Commission has limited information on such systems and requests comment on this issue. 

One commenter describes “practical considerations” that it believes might mean that it 

was “not possible” for certain systems, which they term “Decentralized Exchanges” or “DEXes,” 

to comply with the Proposed Rules.365  These considerations include the fact that, once launched, 

smart contracts “are not controlled or intermediated by any person or group of persons,”366 and 

in particular, that responsibility for the system could not be attributed to the persons who created 

or deployed the smart contract because “once deployed, the DEX typically cannot be 

significantly altered or controlled by any such persons.”367   

The Commission preliminarily believes that our analysis adequately addresses these 

concerns.  Specifically, smart contracts can be controlled after deployment, however, in some 

instances, the functions of miners or validators may be needed to exert such control.  The 

discussion above provides a range of possible scenarios that have different possible costs and 

may result in different entities being affected, but the Commission believes that these costs are 

not impossible to pay.368   

Another commenter states that the compliance burdens imposed by the Proposed Rules 

“may simply be insurmountable due to the incompatibility of the decentralized nature of 

Decentralized Protocols with the requirement for a centralized, regulated intermediary imposed 

 
365  See Coinbase Letter at 7. 
366  See id. at 6. 
367  Id. 
368  As discussed above, these costs may be high enough that the group of persons responsible for the exchange 

choose to exit the market for crypto asset security trading services rather than continue operations.  See 
infra section V.C.3.a (discussing entry and exit as result of compliance costs). 



129 
 

by the ‘exchange’ definition.”369  This commenter also states that “it is unclear how [persons 

related to Decentralized Protocols] could achieve compliance with the relevant regulations.” 

The Commission acknowledges that, in the case of New Rule 3b-16(a) Systems that use 

the technologies discussed above to automate portions of their operations using smart contracts, 

validators and miners may choose to take actions to form a single entity, like an organization, 

and register with the Commission.  The Commission preliminarily believes that our analysis, 

given above, adequately addresses these concerns of control over the smart contract, which 

entities may incur the costs of compliance, and how large those costs may be.  However, the 

Commission acknowledges that these costs may cause some or all of the entities that make 

available such a system to cease the activities that make them responsible for the system’s 

compliance, potentially resulting in the system’s exit from the market. 

Another commenter raises concerns about potential impossibility of limiting certain 

systems’ activity to non-securities trading in the event that the creators of the system wish to 

avoid having to comply with federal securities laws, stating that it would be impossible for any 

“organization, group or association” to ensure no securities are made available for trading on 

such a system.370 

The Commission acknowledges that there may be existing New Rule 3b-16(a) Systems, 

with smart contracts designed to permit anyone with access to the blockchain to begin trading in 

any crypto asset supported by the blockchain, including those that are securities.  In such 

circumstances, the smart contract(s) may have to be altered in order to ensure that the system 

does not trade securities.  As discussed above, this could be achieved either by any organization, 

 
369  See Blockchain Association Letter II at 8. 
370  See Delphi Digital Letter at 7. 



130 
 

association, or group of persons that can make changes to the smart contract, or by the miners or 

validators of the relevant blockchain in the event that the smart contracts are immutable.   

Because of the easily accessible nature of many public blockchains, the Commission 

preliminarily believes that construction, deployment, and maintenance of a New Rule 3b-16(a) 

System that uses the technologies described above could be achieved by groups of persons who 

are unsophisticated participants in financial markets and may not appreciate the significance of 

maintaining a system that meets the definition of exchange as proposed to be amended and 

therefore of having obligations to comply with the relevant securities laws.  The Commission 

believes that the costs of compliance for such persons would be higher because of their lack of 

experience with federal securities laws.  Some such persons may choose to discontinue their 

systems rather than bear the costs of compliance. 

ii. Unique Costs for Systems using Certain Technologies  

The Commission preliminarily believes that certain New Rule 3b-16(a) Systems may 

have difficulties in complying with some rules.  The New Rule 3b-16(a) Systems which may 

have such difficulties are systems which use technologies that, for example, allow them to 

automate portions of their operations using smart contracts deployed on an underlying 

blockchain.  The rules for which there may be such difficulties include Regulation SCI, as well 

as the Fair Access Rule of Regulation ATS.  Systems that use these technologies may have 

difficulties in complying with these rules when compared with platforms that do not use such 

technologies.  For example, there may be difficulties in ensuring the compliance of SCI systems 

that run using DLT, such as smart contracts.  



131 
 

One commenter states that the realities of decentralization make compliance 

“impracticable” for certain systems, which the commenter terms “DeFi.”371  This commenter 

questioned what entity or group of entities involved in the operation of such a system would be 

responsible for complying with Regulation ATS,372 and additionally stated that even if this were 

clear, it was not obvious that this party would have the necessary information to fulfill that 

responsibility.   

The Commission discusses above that a DLT-based market place or facilities for bringing 

together buyers and sellers of securities is typically maintained or provided by a single 

organization but a combination of the actors can constitute, maintain, or provide, together, a 

market place for securities as a group of persons, which would be considered an exchange under 

section 3(a)(1) of the Exchange Act and Rule 3b-16 thereunder.373  The Commission 

acknowledges that there may be some existing systems of this type designed in such a way that 

the information necessary to comply with the disclosure requirements of Regulation ATS is not 

possessed by any singular entity.  In such a case, the Commission believes that the entities 

responsible for compliance may find it necessary to form an organization or designate a member 

of the group of persons to be responsible for compliance, as discussed above,374 and that such an 

organization or member of the group of persons would be capable of collecting the information 

necessary to comply.  In cases of a system using DLT, where some or all of this information is 

not already possessed by entities responsible for compliance, the manner in which the system 

functions may have to be altered to make compliance with registration requirements possible.  

 
371  See a16z Letter at 14. 
372  See id. at 3, 14. 
373  See supra section II.B. 
374  See supra section V.C.2.c.i. 



132 
 

As discussed above,375 this could be achieved by the organization or group of persons  

responsible.   

The Commission believes that access to New Rule 3b-16(a) Systems that make extensive 

use of DLT in their operations may happen through processes not common to systems that do not 

make extensive use of such technology.  In this case, such a New Rule 3b-16(a) System may 

have significant challenges in ensuring compliance with the Fair Access Rule of Regulation 

ATS.   

The challenges that may be faced by New Rule 3b-16(a) Systems that make extensive use 

of DLT in complying with Regulation ATS and Regulation SCI may impose significant costs.  It 

is possible that these costs may cause some such systems to exit the market, or to restructure 

their technology to facilitate a lower compliance cost.  In addition, compliance with the 

applicable regulations may result in significant alteration to the manner in which such systems 

operate.   

3. Efficiency, Competition, and Capital Formation 

a. Competition 

The Commission believes that the Proposed Rules could affect competition.  The 

Proposed Rules could promote competition by requiring ATSs and New Rule 3b-16(a) Systems 

to operate on a more equal basis in the market for crypto asset securities trading services.  The 

Fair Access Rule of Regulation ATS could promote competition in the market for trading 

services in the applicable securities markets.376  Furthermore, the public disclosure of Form 

 
375  See supra section V.C.2.c.i. 
376  See infra section V.C.3.a.i.e for discussion about the impact of the Fair Access Rules on competition. 



133 
 

ATS-N could promote competition and incentivize innovation in the market for trading services 

in the applicable securities markets.377 

Also, the costs of the Proposed Rules associated with, among other things, altering 

business practices to come into compliance, becoming a broker-dealer, filing Form ATS or Form 

ATS-N as applicable, and complying with the Fair Access Rule of Regulation ATS and 

Regulation SCI as applicable could result in higher barriers to entry and reduction in the rate of 

adoption of new technologies in the market for crypto asset securities trading services.  

Furthermore, the requirements of broker-dealer registration, Form ATS, and Form ATS-N could 

reduce operational flexibility.  The Commission acknowledges that this reduction in operational 

flexibility could, under certain circumstances, make it more difficult to innovate.  That said, in 

addition to the other benefits discussed above,378 the Commission believes that the proposed 

amendments would foster competition by requiring current ATSs and New Rule 3b-16(a) 

Systems to operate on a more equal basis in the market for trading services.  This, in turn, would 

help promote innovation.  To the extent that the Proposed Rules result in significant costs for 

New Rule 3b-16(a) Systems, these systems could exit the market for crypto asset securities 

trading services.  In particular, to the extent that New Rule 3b-16(a) Systems using certain 

technologies incur higher costs,379 there may be a higher chance of these New Rule 3b-16(a) 

Systems exiting the market.  As in the Proposing Release, the Commission lacks certain 

information necessary to quantify the extent to which entities that otherwise would seek to 

 
377  See infra section V.C.3.a.i.f for discussion about the impact of public disclosure via Form ATS-N under 

Rule 304 of Regulation ATS on competition. 
378  See supra section V.C.1 
379  See supra section V.C.2.c. 



134 
 

operate as a trading venue in the market for crypto asset securities would be dissuaded from 

doing so. 

However, the Commission believes that these adverse effects on competition could be 

mitigated to some extent.  To the extent that the market for crypto asset securities trading 

services is competitive and that a limited number of New Rule 3b-16(a) Systems exit the market, 

the adverse effect on overall competition among trading platforms would be mitigated to some 

extent because the order flow that was being sent to exiting New Rule 3b-16(a) Systems would 

likely be absorbed and redistributed amongst other New Rule 3b-16(a) Systems or systems that 

meet the existing criteria of Rule 3b-16(a).380   

One commenter states that regulating “DeFi protocols or CPSs (or related parties)” as 

exchanges might “operate as a ban” due to the inability of those entities to comply with 

registration requirements.381  Another commenter also states that the proposed amendments 

might amount to a “back-door prohibition of a vast swathe of actual and potential peer-to-peer 

finance protocols” due to the inability for some entities to feasibly comply.382  Another 

commenter states that “subjecting DeFi systems to a regulatory regime that they cannot comply 

with” could force them into extinction.383 

The Commission acknowledges that the costs of compliance may be greater for market 

participants that trade crypto asset securities than for those that trade non-crypto asset securities.  

However, the Commission believes that the additional costs of compliance experienced by 

 
380  To the extent that the market for trading services is competitive, the adverse effect on competition may not 

result in a significant increase in trading costs for market participants because the order flow that was being 
sent to those exiting New Rule 3b-16(a) Systems would likely be absorbed and redistributed amongst other 
New Rule 3b-16(a) Systems or systems that meet the existing criteria of Rule 3b-16(a). 

381  See DeFi Education Fund Letter at 8. 
382  See Wells Letter at 1. 
383  See a16z Letter at 11. 



135 
 

market participants that trade crypto asset securities will vary depending on the technologies 

these participants use to perform exchange activity. The Commission lacks some information 

necessary to precisely estimate the degree to which these market participants may experience 

greater costs of compliance, but expects that such costs would fall within a range. At the lower 

end of the range, the Commission believes that market participants that use technologies similar 

to those commonly used in the market for traditional securities, such as off-chain RFQ systems, 

will also incur similar costs of compliance.  At the other end of the scale, the Commission 

expects that costs of compliance may be significantly higher for market participants that 

extensively or exclusively use DLT, such as smart contracts, to perform exchange activities.  

Accordingly, while the Commission acknowledges that the Proposed Rules could raise barriers 

to entry into the market for crypto asset security trading services, the Commission believes that 

these barriers would be most significant for market participants that perform exchange activity in 

a way that extensively or exclusively uses DLT.  The Commission additionally believes that for 

market participants that perform exchange activity using non-DLT methods, these barriers would 

likely be comparable to those experienced by participants in the market for traditional securities 

trading services.   

One commenter states that the cost of compliance and consequences of non-compliance 

would have the effect of “chilling, restricting or prohibiting outright the creation of code for 

peer-to-peer digital asset trading or websites that provide access to information about those 

protocols.”384  Another commenter states that, to the extent that “adoption of the Proposal will 

cause the developers of code and smart contracts related to a Decentralized Protocol, or the 

maintainers of online websites that merely enable access to a Decentralized Protocol, to be 

 
384  See Delphi Digital Letter at 11. 



136 
 

captured under the ‘exchange’ definition,” the proposal might cause such persons to cease their 

activities, “dealing a death blow to new activity in this sector.”385 

The Commission does not believe that the amended definition of exchange would include 

the entities responsible for these “Decentralized Protocols”, except to the extent that they also 

engage in activity that meets the definition of exchange as proposed to be amended in the 

Proposed Rules.386  While the Commission acknowledges that the Proposed Rules may impose 

compliance costs, the Commission does not believe that the circumstances in which such entities 

would incur compliance costs would differ from the circumstances in which entities in non-

crypto asset securities would incur compliance costs, namely, at the point at which such an entity 

engages in activity that meets the definition of exchange as proposed to be amended.  However, 

the Commission acknowledges that because the compliance costs for entities that trade crypto 

asset securities may be higher than for those that trade non-crypto asset securities,387 the impact 

of those costs on innovation in crypto asset securities may be greater. 

One commenter stated that the Proposed Rules might “drive financial innovation 

offshore.”388  This commenter also added that the Proposed Rules “would preclude the 

development in the U.S. of many software tools and applications, including, but not limited to, 

DeFi protocols.”389   

The Commission acknowledges that, to the extent that the Proposed Rules impose 

compliance costs on entities responsible for innovation, such costs may affect their decision on 

 
385  See Blockchain Association Letter II at 6. 
386  See supra section V.C.2.a. 
387  See supra sections V.C.2.a and V.C.2.c.ii. 
388  See DeFi Education Fund Letter at 12. 
389  See id. at 17. 



137 
 

which jurisdiction they choose to operate their business in.  However, the Commission believes 

that these costs may be mitigated.  The Commission believes that, at the lower end of this range, 

an entity that engages in the development of new technologies in the market for crypto asset 

trading services would incur compliance costs only once its innovative technology allows 

investors to trade securities.  If such an entity develops its technology in an environment that 

does not enable investors to trade securities, such as a testnet,390 the Commission does not 

believe it would incur compliance costs in connection with these activities.  Additionally, while 

the Commission lacks certain data that would enable the Commission to precisely estimate the 

compliance costs that an innovative entity would face once its innovative technology enables 

investors to trade crypto asset securities, it believes that these costs would lie within a range.  At 

the lower end of this range, the Commission believes that a market participant that uses 

innovative technology similar to technology that is used in traditional financial markets would 

also incur similar compliance costs.  At the other end of the scale, the Commission expects that 

compliance costs would be largest for entities developing technologies that rely heavily on DLT, 

such as smart contracts, to perform exchange activity, and have minimal or no off-chain 

components.  The Commission additionally believes that many systems that would experience 

these higher costs could be restructured to make less extensive use of these novel technologies, 

although this could significantly reduce the extent to which these systems operate in accordance 

with “DeFi” principles. 

One commenter states their belief that the Proposed Rules would cause platforms to 

either “operate exclusively outside the United States or exit the business,” due to lack of a 

 
390  This term refers to a blockchain designed to test technologies, such as smart contracts, in a manner that 

involves no risk of monetary loss.  Testnets support a set of tokens that are distinct from “mainnet” tokens, 
and which are freely available from “faucets” that add them to wallets on request.  As such, testnet tokens 
have no monetary value and are not securities.  See https://coinmarketcap.com/alexandria/glossary/testnet. 



138 
 

“realistic prospect of obtaining SEC authority to operate as an exchange or SEC and FINRA 

authority to operate as an ATS.”391  This commenter notes that the Commission had not, at the 

time of writing, “registered any digital asset platform as an exchange.”392   

While the Commission acknowledges that the Proposed Rules would impose costs on 

New Rule 3b-16(a) Systems that trade crypto asset securities, which may in turn raise barriers to 

entry as discussed above or create incentives to exit the market, the Commission disagrees that 

compliance would be “infeasible.”  The Commission has discussed, above, the manner and 

extent to which it believes that compliance costs may create barriers to entry for market 

participants that seek to trade crypto asset securities.  To the extent that market participants that 

trade crypto asset securities face barriers to entry or incentives to exit due to higher compliance 

costs, or perceive this to be the case, the Commission acknowledges that such entities may 

instead choose to operate outside the U.S. or exit the market. 

 Regulation ATS 

a) Regulatory Framework 

Market participants may consider registered exchanges, ATSs, and broker-dealers (e.g., 

single dealer platforms) to send their order flow in crypto asset securities.  As discussed in the 

Proposing Release,393 to the extent that current ATSs and New Rule 3b-16(a) Systems compete, 

the proposed changes to Exchange Act Rule 3b–16, which would subject New Rule 3b-16(a) 

Systems to the exchange regulatory framework, which includes the option to comply with 

Regulation ATS, would promote competition by requiring current ATSs and New Rule 3b-16(a) 

Systems to operate on a more equal basis in securities markets.  The Commission believes this to 

 
391  See GDCA Letter II at 7. 
392  See id. at 13. 
393 See Proposing Release at 15634. 



139 
 

be the case in the market for crypto asset securities as it is in the market for the securities 

discussed in the Proposing Release.  To the extent that registered exchanges, ATSs, broker-

dealers compete for order flows in the crypto asset securities market, the differential compliance 

costs for exchange, ATS, and broker-dealer would affect competition across these different types 

of trading platforms.  The Commission acknowledges that national securities exchanges would 

incur significantly higher compliance costs than ATSs and broker-dealers, and ATSs would incur 

higher compliance costs than broker-dealers.  Higher compliance costs could put registered 

exchanges at a disadvantage in competing against ATSs and broker-dealers that trade the same 

types of securities, and similarly put ATSs at a disadvantage in competing against broker-

dealers.  Although registered exchanges, ATSs, and broker-dealers may compete for order flows, 

they provide different services and are subject to different regulatory obligations.  Furthermore, 

to the extent that New Rule 3b-16(a) Systems that use certain technologies to compete with other 

New Rule 3b-16(a) Systems for order flows, higher costs for New 3b-16(a) Systems that use 

certain technologies would put such systems at a competitive disadvantage against other New 

Rule 3b-16(a) Systems.394 

One commenter states that the Proposed Rules would advantage “traditional financial 

services companies,” due to “fundamentally dissimilar technologies.”395  This commenter adds 

that the Proposed Rules would “limit competition and transparency by entrenching existing 

market players” to the detriment of investors and the public, but does not specify who these 

existing market players might be.396  The commenter additionally states their concern that the 

 
394  See supra section V.C.2.c for discussion about the additional costs for New 3b-16(a) Systems that use 

certain technologies. 
395  See DeFi Education Fund Letter at 2. 
396  See DeFi Education Fund Letter at 10. 



140 
 

Proposed Rules might include in the revised definition of exchange certain entities that 

contribute code “to an open-source project that subsequently allows third parties to engage in 

trading activity” but have no ability “to supervise that activity or impose limitations on the types 

of orders that are entered.”  The commenter states that under the Proposed Rules, a developer 

that cannot comply with registration requirements might leave the market or provide services to a 

traditional trading platform, “further entrenching the traditional systems.”  

The Commission does not believe that the amended definition of exchange would include 

the entities responsible for innovation in the markets for crypto assets or crypto asset trading 

services, except to the extent that they also engage in activity that meets the definition of 

exchange as amended in the Proposed Rules.397  The Commission acknowledges that, to the 

extent that market participants who trade crypto asset securities compete with traditional 

financial services firms and that such market participants incur greater costs of compliance,398 

the Proposed Rules could give traditional financial services firms a competitive advantage.  

Because the Commission lacks information on the degree to which such market participants 

would incur greater costs of compliance, the Commission cannot estimate the extent of this 

advantage.  Additionally, the Commission believes that the Proposed Rules would cause New 

Rule 3b-16(a) Systems to compete on a more equal basis with their main competitors in the 

market for crypto asset securities, which the Commission believes may already be subject to 

federal securities regulations.399 

 
397  See supra section V.C.2.a. 
398  See supra sections V.C.2.a and V.C.2.c. 
399  See supra section II.B.141 
 

As discussed in the Proposing Release,400 the Commission acknowledges that some New 

Rule 3b-16(a) Systems could restructure their operations to not meet the Rule 3b-16 criteria as 

proposed to be amended to avoid being subject to Regulation ATS and Regulation SCI if the 

requirements are too burdensome or impair the ability of the trading venue to compete.  As in the 

Proposing Release, the Commission believes that the risk of this occurring may be mitigated 

because the proposed amendments to Rule 3b–16 may make it difficult for New Rule 3b-16(a) 

Systems to restructure their operations to not meet the Rule 3b-16 criteria as proposed to be 

amended.  To the extent this does occur, the benefits and enhancements to competition discussed 

above would be reduced.  The Commission believes that these effects would apply to New Rule 

3b-16(a) Systems that trade in crypto asset securities as they would to New Rule 3b-16(a) 

Systems that trade the securities discussed in the Proposing Release. 

As discussed in the Proposing Release,401 the Commission acknowledges that subjecting 

New Rule 3b-16(a) Systems to the requirements of Regulation ATS could reduce operational 

flexibility.  For example, it would be more costly for New Rule 3b-16(a) Systems to implement 

significant changes to operational facets that would be required to be reported on Form ATS or 

Form ATS-N.  This reduction in operational flexibility could, under certain circumstances, make 

it more difficult to innovate.  The Commission believes this effect would apply to New Rule 3b-

16(a) Systems that trade crypto asset securities in the same manner that it would to New Rule 3b-

16(a) Systems that trade non-crypto asset securities discussed in the Proposing Release.  

However, as in the Proposing Release, in addition to the other benefits discussed above, the 

Commission believes that the Proposed Rules could foster competition by requiring current 

 
400 See Proposing Release at 15634. 
401  See id. 



142 
 

ATSs and New Rule 3b-16(a) Systems to operate on a more equal basis in the market for crypto 

asset security trading services.  This, in turn, could help promote innovation. 

b) Compliance Costs of Regulation ATS 

To the extent that the costs402 associated with altering business practices for New Rule 

3b-16(a) Systems to come into compliance with Regulation ATS are significant enough to make 

these systems unprofitable, these systems could exit the market for crypto asset securities trading 

services, adversely affecting competition.403  To the extent that New Rule 3b-16(a) Systems 

using certain technologies incur additional costs to come into compliance with Regulation ATS, 

these systems could have a higher chance of exiting the market for crypto asset securities trading 

services.404  Furthermore, to the extent the Proposed Rules result in a New Rule 3b-16(a) System 

that trades less liquid securities exiting the market for trading services, it could increase the 

trading costs of its subscribers if they need to find a new trading venue or are forced to go 

through multiple intermediaries (i.e., broker-dealers) to find counterparties.  However, to the 

extent that the market for crypto asset securities trading services is competitive and that a limited 

number of New Rule 3b-16(a) Systems exit the market, the adverse effect on overall competition 

among trading platforms would be mitigated to some extent.   

Furthermore, the Commission preliminarily believes that the compliance costs associated 

with Regulation ATS would have different effects on the competitive position of ATSs 

 
402  See infra sections V.C.3.a.i.c) and V.C.3.a.i.d) for discussions about the impact of costs associated with 

Rule 301(b)(1) (broker-dealer registration requirements) and Rule 301(b)(5) (the Fair Access Rule) of 
Regulation ATS on competition, respectively.  

403  See supra sections V.C.2.b and V.C.2.c for discussion about the costs associated with changing business 
practices to come into compliance with Regulation ATS. 

404  See supra section V.C.2.c for discussion about the additional costs associated with changing business 
practices to come into compliance with Regulation ATS for New Rule 3b-16(a) Systems that use certain 
technologies. 



143 
 

depending on their size.  As a result of the Proposed Rules, all New Rule 3b-16(a) Systems 

would be subject to Rule 301(b)(2), Rule 301(b)(9) and Rule 301(b)(10), Rule 302, and Rule 

303.  As discussed above405 and in the Proposing Release,406 most of the estimated compliance 

costs associated with these rules would be fixed costs to those New Rule 3b-16(a) Systems 

regardless of the amount of trading activity that takes place on them, and thus, these compliance 

costs would represent a larger fraction of revenue for a small (measured in trading volume) New 

Rule 3b-16(a) System relative to that for a large New Rule 3b-16(a) System.  Furthermore, most 

of the estimated compliance costs associated with the requirements of Form ATS-N under Rule 

304, which all New Rule 3b-16(a) Systems that trade NMS stocks or government securities 

would incur, would be fixed costs.407  This could have an adverse impact on New Rule 3b-16(a) 

Systems of small size in competing against larger ATSs, which could act as a deterrent or a 

barrier to entry for potential New Rule 3b-16(a) Systems or result in small New Rule 3b-16(a) 

Systems exiting the market for trading services.  However, if small New Rule 3b-16(a) Systems 

engage in providing simpler services, these small New Rule 3b-16(a) Systems are likely to incur 

lower compliance costs.  The Commission believes that these effects would apply to the market 

for crypto asset securities in the same manner that they would to the market for non-crypto asset 

securities. 

The Commission acknowledges the Proposed Rules could reduce operational flexibility, 

which could, under certain circumstances, make it more difficult to innovate or reduce the rate of 

the adoption of new technologies.  As in the Proposing Release, the Commission believes that, to 

the extent the Proposed Rules force an entity that develops new technologies to exit the market, 

 
405  See supra section VIII.C.2.a.i. 
406  See Proposing Release at note 1165. 
407  See supra section VIII.C.2.a.i and Proposing Release, section VIII.C.2.a.i. 



144 
 

it may be able to restructure itself (rather than operate as an ATS) as a third-party vendor and 

continue to provide certain innovative services, or otherwise sell its technology to another ATS, 

which would mitigate to some extent any adverse impact the Proposed Rules may have on the 

adoption of new technologies in the market for crypto asset security trading services. 

c) Broker-Dealer Registration Requirements 

In addition to the compliance costs associated with the requirements of Regulation ATS, 

non-broker-dealer-operated New Rule 3b-16(a) Systems without a broker-dealer affiliate would 

incur additional compliance costs related to registering with the Commission as broker-dealers, 

becoming members of an SRO, such as FINRA, and maintaining broker-dealer registration and 

SRO membership.  Furthermore, these non-broker-dealer operators could incur costs associated 

with altering business practices to come into compliance with the Proposed Rules.408  To the 

extent that the costs associated with changing business practices to come into compliance with 

the Proposed Rules is significant enough to render non-broker-dealer operators of New Rule 3b-

16(a) Systems unprofitable to stay in the business, these operators of New Rule 3b-16(a) 

Systems would exit adversely impacting competition in the market for crypto asset securities 

trading services.409  However, to the extent that the market for crypto asset securities trading 

services is competitive and that a limited number of New Rule 3b-16(a) Systems exit the market, 

the adverse effect on overall competition would be mitigated. 

 
408  See supra section V.C.2.a.ii for discussion about the costs associated with changing business practices to 

come into compliance with the Proposed Rules. 
409  The Commission believes that the costs associated with the broker-dealer registration requirements could 

adversely affect the rate of innovation.  See supra sections V.C.3.a.i and V.C.3.a.i.c) for discussion about 
the impact of the Proposed Rules on the rate of innovation.   



145 
 

d) Ineffectiveness Declaration 

The proposed ability for the Commission to be able to declare a Form ATS-N or Form 

ATS-N amendment ineffective could result in compliance costs for New Rule 3b-16(a) Systems 

that trade NMS stocks and may affect competition in the market for NMS stock trading services.  

However, as discussed in the Proposing Release,410 based on Commission staff’s experience with 

NMS Stock ATSs that filed an initial Form ATS-N, the Commission preliminarily believes this 

would be an unlikely result.  The Commission believes this unlikeliness would extend to the 

market for crypto asset securities that are NMS stocks. 

e) Fair Access 

The Commission believes that applying the Fair Access Rule to New Rule 3b-16(a) 

Systems could increase competition between market participants in the markets for corporate 

debt securities, municipal securities, NMS stocks, and equity securities that are not NMS stocks.  

As discussed above, to the extent that there are market participants currently excluded from 

trading on significant New Rule 3b-16(a) Systems, applying the Fair Access Rule to New Rule 

3b-16(a) Systems could increase trading venue options available to these market participants, 

which could lower their trading costs.  This, in turn, could increase competition among market 

participants trading on these platforms, which could be significant sources of liquidity and 

represent a significant portion of trading volume in their respective markets.  However, these 

competitive effects may be reduced to the extent that some existing subscribers of trading venues 

that are subject to the Fair Access Rule redirect their trading interest to other trading venues not 

subject to the Fair Access Rule in order to preserve some of the benefits they may receive from a 

trading venue limiting access.  If the Proposed Rules to apply certain aggregate volume 

 
410  See Proposing Release at 15636 including notes 1180 and 1183. 



146 
 

thresholds increase the number of smaller affiliate ATSs that would be subject to the Fair Access 

Rule, it could also increase competition among market participants, to the extent that certain 

market participants are currently excluded from accessing these platforms.  The Commission 

believes that these effects on competition would apply to New Rule 3b-16(a) Systems that trade 

crypto asset securities in the same manner that they would to New Rule 3b-16(a) Systems that 

trade non-crypto asset securities. 

Additionally, as discussed in the Proposing Release, the Proposed Rules to apply certain 

aggregate volume thresholds to the Fair Access Rule could also harm competition among trading 

venues in the markets for corporate debt, municipal securities, NMS stock and equity securities 

that are not NMS stocks if they cause a broker-dealer or affiliated broker-dealers that operate 

multiple ATSs to restrict trading in one or more securities, or shut down one or more of their 

smaller ATSs, in order to avoid triggering the Fair Access volume threshold.  However, because 

the trading volume on these smaller ATSs would likely be absorbed and redistributed amongst 

other ATSs or non-ATS venues, the Commission believes that the overall effects on competition 

among trading venues may not be significant.  To the extent that the markets for trading services 

are competitive, the Commission believes that such competitive effects would be applicable to 

New 3b-16(a) Systems that trade crypto asset securities that are corporate debt securities, 

municipal securities, NMS stock, and equity securities that are not NMS stocks. 

f) Public Disclosure 

As discussed in the Proposing Release,411 the public disclosure of Form ATS-N would 

enhance the operational transparency of New 3b-16(a) Systems that trade in NMS stocks, 

including crypto asset securities that are NMS stocks.  The enhancement in the operational 

 
411  See Proposing Release at 15637. 



147 
 

transparency of New Rule 3b-16(a) Systems would promote competition in the markets for 

crypto asset securities trading services.  The increase in competition could result in lower venue 

fees, improve the efficiency in customer trading interest or order handling procedures, and 

promote innovation.  To the extent that non-ATS venues compete with ATSs’ order flows, the 

increased operational transparency of ATSs could also incentivize non-ATS trading venues to 

reduce their fees to compete with ATSs.  The Commission believes that these effects would 

apply to the market for crypto asset securities trading services.  However, because New Rule 3b-

16(a) Systems using smart contracts operate using code which may be, at least in part, publicly 

viewable, it is possible that the impacts of Form ATS-N disclosures on competition may be 

reduced, for such systems.  However, because this code is not disclosed in a form that is 

standardized or readable to a layman, the Commission believes that this reduction of impact may 

not be significant. 

As discussed in the Proposing Release,412 because the public disclosure of Form ATS-N 

would make it easier for market participants to compare the quality of trading services, such as 

innovative trading functionalities, order handling procedures, and execution statistics, market 

participants would be more likely to send their trading interests or orders to ATSs, including 

New 3b-16(a) Systems, that offer better trading services.  This would promote greater 

competition in the market for trading services and incentivize ATSs to innovate, including in 

particular, technology related to trading services to improve the quality of such services to attract 

more subscribers.  The Commission believes these effects on competition and innovation would 

apply to ATSs trading in crypto asset securities that are NMS stocks in the same manner that 

they do to ATSs that trade non-crypto asset securities.  

 
412  See id. 



148 
 

As discussed in the Proposing Release,413 the public disclosure of Form ATS-N would 

also result in market participants redirecting their trading interest away from ATSs that offer 

lower quality trading services compared to other ATSs, which could result in these ATSs earning 

less revenue.  If the loss in revenue causes these ATSs to become unprofitable, they might 

choose to exit the market.  The Commission believes these effects would apply to ATSs trading 

in crypto asset securities that are NMS stocks in the same manner that they do to ATSs that trade 

non-crypto asset securities. 

As discussed in the Proposing Release,414 the public disclosure of previously nonpublic 

information regarding innovative operational facets of a New Rule 3b-16(a) System that trades 

NMS stock could adversely impact competition in the market for trading services and also 

reduce the incentives for these trading venues to innovate.  As in the Proposing Release, the 

Commission believes that the risk of these adverse effects occurring would be low, because the 

information disclosed on Form ATS-N is not likely to include detailed enough information 

regarding operational facets or innovations such that the public disclosure would adversely affect 

the competitive position of the disclosing ATS.  To the extent that any crypto asset security is an 

NMS stock, the Commission believes that these effects would apply as described in the 

Proposing Release to market participants wishing to trade such a security. 

As discussed in the Proposing Release,415 although the Commission acknowledges that 

some NMS stock ATSs could restructure their operations to be non-ATSs to avoid being subject 

to the public disclosure of Form ATS-N, the risk of this occurring may be mitigated because the 

 
413  See id. 
414  See id. at 15638. 
415  See id. 



149 
 

proposed amendments to Rule 3b–16 may make it difficult for an ATS, including one that trades 

crypto asset securities, to restructure their operations to be non-ATSs. 

 Regulation SCI 

The Commission believes that the requirements imposed by Regulation SCI may not 

have a significant adverse effect on competition in the market for crypto asset security trading 

services, or on market participants’ trading costs in the market for crypto asset securities. 

As discussed in the Proposing Release,416 the Commission believes that the compliance 

costs imposed by Regulation SCI may not have a significant adverse effect on competition 

among SCI ATSs, non-SCI ATSs, and non-ATS venues in the NMS stock market due to 

mitigating factors.  If SCI ATSs pass on the compliance costs to their subscribers in the form of 

higher fees, SCI ATSs would lose order flow or their subscribers to other, non-SCI ATSs and 

non-ATS venues with lower fees.  Adverse competitive effects, however, would be mitigated 

because an SCI ATS would likely have more robust systems, fewer disruptive systems issues, 

and better up-time compared to non-SCI ATSs.  Furthermore, any adverse competitive effect 

may be minor if an SCI ATS is large and has a more stable and established subscriber base than 

other ATSs and non-ATS venues.  The Commission expects these effects to apply to ATSs 

trading in crypto asset securities that are NMS stocks in the same manner. 

As discussed in the Proposing Release,417 the compliance costs associated with 

participating in business continuity and disaster recovery plan testing would affect competition 

among subscribers of SCI ATSs and also would raise barriers to entry for new subscribers. 

Because some subscribers would incur compliance costs associated with Rule 1004 and others 

 
416  See id. 
417  See id. 



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would not, it would adversely impact the ability for those subscribers of SCI ATSs to compete.  

The Commission expects these effects to apply to ATSs trading in crypto asset securities that are 

NMS stocks in the same manner that they apply to ATSs that trade non-crypto asset securities, 

but as in the Proposing Release, the Commission lacks sufficient information to estimate the 

extent of impact on competition.  If larger subscribers of SCI ATSs already maintain connections 

to backup facilities including for testing purposes, the adverse impact on competition would be 

mitigated because the incremental compliance costs associated with the business continuity and 

disaster recovery plan testing requirements under Rule 1004 would be limited for those larger 

subscribers.  The Commission believes that, in the market for crypto asset securities as in the 

market for non-crypto asset securities, new subscribers are less likely to be designated 

immediately to participate in business continuity and disaster recovery plan testing than are 

existing larger subscribers because new subscribers might not initially satisfy the ATS’s 

designation standards as they establish their businesses.  

As discussed in the Proposing Release,418 it is difficult to estimate the costs of Regulation 

SCI for third-party vendors that operate SCI systems or indirect SCI systems on behalf of SCI 

ATSs.  If Regulation SCI imposes compliance costs on such vendors, the compliance costs 

would affect the competition among third-party vendors in the market for SCI systems or indirect 

SCI systems.  If the costs associated with Regulation SCI for third-party vendors outweigh the 

benefits of continuing to operate SCI systems or indirect SCI systems on behalf of SCI ATSs, 

these third-party vendors would exit the market for SCI systems or indirect systems.  In this 

respect, Regulation SCI would adversely impact such vendors and reduce the ability for some 

third-party vendors to compete in the market for SCI systems and indirect SCI systems, with 

 
418  See id. 



151 
 

attendant costs to SCI ATSs.  If this happens, SCI ATSs would incur costs from having to find a 

new vendor, form a new business relationship, and adapt their systems to those of the new 

vendor. SCI ATSs might also elect to perform the relevant functions internally.  If the current 

third-party vendors are the most efficient means of performing certain functions for SCI ATSs, 

and to the extent that any third-party vendor exits the market, finding new vendors or performing 

the functions internally would represent a reduction in efficiency for SCI ATSs.  The 

Commission expects these effects to apply to ATSs trading in crypto asset securities that are 

NMS stocks, and their vendors, in the same manner that they apply to ATSs that trade non-

crypto asset securities. 

b. Efficiency and Capital Formation 

As discussed in the Proposing Release,419 the Commission believes the Proposed Rules 

could promote price efficiency and capital formation by reducing trading costs and the potential 

for systems disruptions on ATSs that capture a significant portion of trading volume.  As 

discussed in the Proposing Release,420 the proposed requirement for certain New Rule 3b-16(a) 

Systems to publicly disclose Form ATS-N could help reduce trading costs for market 

participants.  Subjecting significant New Rule 3b-16(a) Systems to the Fair Access Rule could 

also help reduce market participants’ trading costs.  A reduction in trading costs could, in turn, 

reduce limits to arbitrage and help facilitate informed traders impounding information into 

security prices, which could enhance price efficiency.  Extending Regulation SCI and Rule 

301(b)(6) would help improve systems up-time for ATSs and would also promote more robust 

systems that directly support execution facilities, order matching, and the dissemination of 

 
419  See Proposing Release at 15639. 
420  See id. 



152 
 

market data, which could also enhance price efficiency.  The Commission expects these effects 

to apply to ATSs that trade crypto asset securities in the same manner that they apply to ATSs 

that trade non-crypto asset securities. 

 Proposed Rules could also adversely affect the price efficiency of crypto asset securities.  

It may no longer be possible for a New Rule 3b-16(a) System to facilitate trading crypto asset 

securities for crypto assets that are not securities.  To the extent that the markets for crypto asset 

securities denominated in crypto assets that are not securities reduce transaction costs, market 

participants would experience higher transaction costs, reducing price efficiency, and impeding 

the price discovery process.421  Also, if ATSs restrict trading volume in certain securities to stay 

below the Fair Access Rule, Regulation SCI, and Rule 301(b)(6) thresholds, it could adversely 

affect price efficiency and capital formation.  The Commission expects these effects to apply to 

ATSs that trade crypto asset securities in the same manner that they apply to ATSs that trade 

non-crypto asset securities. 

As discussed in the Proposing Release,422 enhanced price efficiency could also promote 

capital formation.  On the other hand, the Commission believes that the proposed amendments of 

the Fair Access Rule, Regulation SCI, and Rule 301(b)(6) could also adversely affect price 

efficiency and capital formation if ATSs that are close to satisfying the volume threshold limit 

trading over some period restrict trading or cease operating to stay below the volume thresholds 

and avoid being subject to these rules.  To the extent that this keeps ATSs from getting larger, it 

would increase fragmentation, and thus, adversely affect price efficiency in those markets, 

harming capital formation.  The Commission expects these effects to apply to ATSs that trade 

 
421  See supra section V.C.2.b for discussion about the costs associated with the trading of crypto asset 

securities for crypto assets that are not securities on Communication Protocol Systems. 
422  See id. 



153 
 

crypto asset securities in the same manner that they apply to ATSs that trade non-crypto asset 

securities. 

D. Reasonable Alternatives 

 The Commission has considered several alternatives to the Proposed Rules: (1) delay 

subjecting New Rule 3b-16(a) Systems that exclusively trade crypto asset securities to the 

Proposed Rules; (2) subject only New Rule 3b-16(a) Systems that trade government securities to 

the Proposed Rules; (3) subject only New Rule 3b-16(a) Systems that trade fixed income 

securities to the Proposed Rules; (4) exempt New Rule 3b-16(a) Systems that use only non-firm 

trading interest from the Fair Access Rule; (5) exempt New Rule 3b-16(a) Systems that use only 

non-firm trading interest from Regulation SCI; (6) stipulate that systems offering non-firm 

trading interest only meet the definition of an exchange if they offer anonymous interactions; and 

(7) use a more explicit and prescriptive approach in defining the type of non-firm trading interest 

system that meets the definition of an exchange. 

1. Delay Subjecting New Rule 3b-16(a) Systems that Exclusively Trade 

Crypto Asset Securities to the Proposed Rules 

As discussed above, the Commission received comment, and is soliciting comment, on 

the application of the Proposed Rules to systems that trade crypto asset securities.  As an 

alternative, the Commission could adopt the proposed changes to Rule 3b-16(a), but delay 

applying the changes to New Rule 3b-16(a) Systems that trade crypto asset securities.423 

 
423  Alternatively, a delay could be implemented for other types of securities.  See supra section III.E.  As 

discussed above, for purposes of adopting a different compliance date for New Rule 3b-16(a) Systems that 
trade crypto asset securities, crypto asset securities could be defined as, for example, securities that are also 
issued and/or transferred using distributed ledger or blockchain technology, including, but not limited to, 
so-called “virtual currencies,” “coins,” and “tokens,” to the extent they rely on cryptographic protocols.  
The Commission is soliciting comment on the definition.  See id. 



154 
 

Importantly, this alternative of a delayed compliance period would be only with respect 

to the application of the new rules. Notwithstanding inclusion of this alternative of providing a 

delayed compliance date with respect to New Rule 3b-16(a) Systems that trade crypto asset 

securities, the Commission emphasizes that operators of trading systems, including those trading 

crypto asset securities, need to evaluate whether they meet the criteria of existing Exchange Act 

Rule 3b-16(a), and thus must register as a national securities exchange or operate pursuant to an 

exemption to such registration, or meet the definition of a “broker” or “dealer” that is required to 

register with the Commission and become a member of a self-regulatory organization.  In this 

regard, the Commission will continue to evaluate whether currently operating systems are acting 

consistently with federal securities laws and the rules thereunder.  

Relative to the proposal, this alternative would result in delayed benefits and costs 

because market participants that trade in crypto asset securities using New Rule 3b-16(a) 

Systems would not accrue benefits424 and costs425 discussed in sections V.C.1 and V.C.2 or in 

the Proposing Release until the delayed compliance date.  Similarly, this alternative would result 

in delayed effects on efficiency, competition, and capital formation discussed above.426   

This alternative could result in several additional effects.  It may be that New Rule 3b-

16(a) Systems that trade in both crypto asset securities and non-crypto asset securities would 

have the incentive to separate crypto asset securities trading, which would be subject to the 

 
424  Affected benefits would include delayed enhancements to regulatory oversight and investor protection, 

delayed reductions of trading costs, delayed improvements to execution quality, smaller enhancements of 
price discovery and liquidity, and delayed benefits from electronic filing requirements as described above.  
See supra section V.C.1. 

425  Affected costs would include delayed implementation costs, delayed costs associated with broker-dealer 
requirements, ineffectiveness declaration, the Fair Access Rule, Rule 301(b)(6), and Regulation SCI, and 
delayed indirect costs as described above.  See supra section V.C.2. 

426  See supra section V.C.3. 



155 
 

delay.  This could reduce efficiency.  Relative to the proposal, New Rule 3b-16(a) Systems that 

trade exclusively in crypto asset securities would enjoy a competitive advantage for a longer 

period of time over New Rule 3b-16(a) Systems that trade both crypto asset securities and 

securities that are not crypto assets due to delayed compliance costs.  Furthermore, relative to the 

proposal, to the extent that crypto asset securities of any type of security may be considered 

substitutes for non-crypto asset securities of the same type, and that platforms that trade such 

crypto asset securities compete with those that trade their non-crypto asset security counterparts, 

the platforms that trade crypto asset securities would enjoy a competitive advantage over those 

that trade non-crypto asset securities. 

2. Subject Only New Rule 3b-16(a) Systems that Trade Government 

Securities to the Proposed Rules 

As an alternative, the Commission considered subjecting only New Rule 3b-16(a) 

Systems that trade government securities to the Proposed Rules.  New Rule 3b-16(a) Systems 

play a significant role in the market for government securities.  One of the roles of these New 

Rule 3b-16(a) Systems is to provide a means to communicate trading interest in the dealer-to-

customer market.  The Commission understands that these systems are a significant component 

of the dealer-to-customer segment of government securities market and account for a significant 

portion of the total trading volume in government securities.427   

Under this alternative, New Rule 3b-16(a) Systems that trade securities other than 

government securities would not be subject to the Proposed Rules.  Relative to the proposal, this 

alternative would result in smaller benefits and costs as well as reduced effects on efficiency, 

competition, and capital formation.  Market participants that utilize New Rule 3b-16(a) Systems 

 
427  See Proposing Release at 15601 and 15602. 



156 
 

to trade securities other than government securities would not accrue benefits from the 

requirements of Regulation ATS discussed in the Proposing Release.  Under this alternative, 

relative to the proposal, market participants trading in securities other than government securities 

would not accrue the benefits of the Proposed Rules including the enhancement in regulatory 

oversight and investor protection, the reduction in trading costs, and the enhancement of price 

discovery and liquidity.428  In addition, to the extent that ATSs and New Rule 3b-16(a) Systems 

compete for order flows in securities markets other than government securities, ATSs would not 

be able to compete against New Rule 3b-16(a) Systems on a more equal regulatory basis, which 

would adversely impact competition relative to the proposal.  On the other hand, relative to the 

proposal, the Commission believes that reduced regulatory requirements would help maintain 

operational flexibility, which in turn, would help promote innovations for New Rule 3b-16(a) 

Systems that trade securities other than government securities.  Furthermore, the Commission 

believes that lower compliance costs would help promote competition in the market for trading 

services with respect to non-government securities relative to the proposal. 

3. Subject Only New Rule 3b-16(a) Systems that Trade Fixed Income 

Securities to the Proposed Rules 

As an alternative, the Commission could consider subjecting only New Rule 3b-16(a) 

Systems that trade fixed income securities that are not crypto asset securities429 to the Proposed 

Rules.  New Rule 3b-16(a) Systems play a significant role by providing means to communicate 

trading interest in the dealer-to-customer market in fixed income securities trading.  The 

 
428  See supra section V.C.1 for discussion about the benefits of the Proposed Rules. 
429  Fixed income securities would include government securities, corporate debt securities, municipal 

securities, and asset-backed securities as discussed in the Proposing Release. 



157 
 

Commission understands that these New Rule 3b-16(a) Systems account for a significant portion 

of the total trading volume in fixed income securities.430 

Under this alternative, New Rule 3b-16(a) Systems that trade securities other than fixed 

income securities would not be subject to the Proposed Rules.  Relative to the proposal, this 

alternative would result in smaller benefits and costs as well as reduced effects on efficiency, 

competition, and capital formation.  Market participants that utilize New Rule 3b-16(a) Systems 

to trade securities other than fixed income securities would not accrue benefits from the 

requirements of Regulation ATS discussed in the Proposing Release.  For example, market 

participants that trade crypto asset securities via New Rule 3b-16(a) Systems would not benefit 

from investor protection provisions of Regulation ATS.  On the other hand, relative to the 

proposal, the Commission believes that reduced regulatory requirements would help maintain 

operational flexibility, which in turn, would help promote innovations for New Rule 3b-16(a) 

Systems that trade securities other than fixed income securities.  Furthermore, relative to the 

proposal, the Commission believes that lower compliance costs would help promote competition 

in the market for trading services with respect to non-fixed income securities. 

4. Exempt New Rule 3b-16(a) Systems that Use Only Non-Firm Trading 

Interest from the Fair Access Rule 

As an alternative, the Commission considered exempting New Rule 3b-16(a) Systems 

that only use non-firm trading interests from the Fair Access Rule of Regulation ATS.  Relative 

to the proposal, significant New Rule 3b-16(a) Systems that only use non-firm trading interests 

would not incur the costs associated with the Fair Access Rule, which may potentially include 

significant costs for altering business practices to comply with the rule.  On the other hand, to the 

 
430  See Proposing Release at 15601, 15602, 15605, 15606, 15607, and 15609. 



158 
 

extent that there are market participants who are unreasonably denied access to significant New 

Rule 3b-16(a) Systems that only use non-firm trading interests, the execution quality for these 

market participants would be worse relative to the proposal. 

5. Exempt New Rule 3b-16(a) Systems that Use Only Non-Firm Trading 

Interest from Regulation SCI 

As an alternative, the Commission considered exempting New Rule 3b-16(a) Systems 

that only use non-firm trading interests from Regulation SCI.  The requirements of Regulation 

SCI would result in significant costs for significant New Rule 3b-16(a) Systems.  Relative to the 

proposal, significant New Rule 3b-16(a) Systems that only use non-firm trading interests would 

not incur the costs associated with Regulation SCI, which could include significant costs for 

establishing and maintaining geographically diverse backup facilities.  This could promote 

competition by lowering the barriers to entry and reducing the incidences of exit relative to the 

proposal.  On the other hand, relative to the proposal, the frequency and severity of systems 

issues could be higher and the duration of systems issues could be longer, which would harm 

price discovery and adversely impact trading costs of market participants.     

6. Stipulate that Systems Offering Non-Firm Trading Interest Only 

Meet the Definition of an Exchange If They Offer Anonymous 

Interactions 

As an alternative, the Commission considered excluding systems that only use non-firm 

trading interests and do not offer anonymous protocols431 from the definition of an exchange.  

Under this alternative, many significant fully disclosed dealer-to-customer RFQ platforms that 

 
431  An anonymous protocol in this context means that counterparties stay anonymous until the terms (i.e., price 

and quality) of the trade is fixed between the two counterparties engaged in a transaction. 



159 
 

trade fixed income securities including government securities, corporate debt securities, and 

municipal securities would not meet the definition of an exchange, and thus, would not incur the 

costs associated with the Proposed Rules.  Furthermore, lower costs would help promote 

innovation in the market for securities trading services relative to the proposal.  However, 

because this alternative would exclude many significant trading systems that would meet the 

definition of exchange as proposed to be amended that trade fixed income securities, the benefits 

of the Proposed Rules would be significantly reduced relative to the proposal. 

7. Use a More Explicit and Prescriptive Approach in Defining the Type 

of Non-Firm Trading Interest System that Meets the Definition of an 

Exchange 

As an alternative, the Commission considered a more explicit and prescriptive approach 

in defining an exchange by providing a list of specific types of systems that meet the definition 

of an exchange (or, by providing a list of specific types of systems that do not meet the definition 

of an exchange).  Relative to the proposal, this approach would reduce uncertainty and the costs 

associated with the proposed activity-based definition of an exchange.  A more explicit and 

prescriptive definition of an exchange could reduce legal costs associated with complying with 

the proposed activity-based definition of an exchange.432  Furthermore, the reduction in such 

costs could help promote innovation in the market for securities trading services.  On the other 

hand, a more explicit and prescriptive definition of an exchange could make it easier for a 

trading venue to modify its systems to operate as a non-exchange, which would not be subject to 

the Proposed Rules.  Relative to the proposal, this would result in lower benefits.  For example, 

 
432  See also supra section V.C.2.b.ii for discussion about the costs associated with complying with the 

proposed functional-test-based definition of an exchange. 



160 
 

market participants that utilize such trading venues would not benefit from investor protection 

provisions of Regulation ATS. 

E. Request for Comments 

44. In the Proposing Release, the Commission proposed to replace the term “uses” with 

the term “makes available” before “established, non-discretionary methods” in Rule 

3b-16(a)(2) because the Commission proposed to include as an established, non-

discretionary method communication protocols under which buyers and sellers can 

interact and agree to the terms of a trade.433  Would this proposed change have costs 

for developers of technology that are not reflected in the economic analysis?  Would 

adopting alternative language (such as “Uses established, non-discretionary methods 

(whether by providing, directly or indirectly, a trading facility…),” “[E]stablishes 

non-discretionary methods (whether by providing, directly or indirectly, a trading 

facility or…)”) result in different costs than the proposed language?434 

45. Do commenters agree with the Commission’s characterization of platforms in the 

market for crypto assets securities?  Please provide any relevant details that you 

believe are missing from the Commission’s description. 

46. Please provide any information on the number and type of venues that permit trading 

crypto asset securities for fiat currency.  

47. Do commenters agree with the Commission’s characterization of the technology used 

by systems in the market for crypto assets securities?  Please provide any relevant 

details that you believe are missing from the Commission’s description. 

 
433  See Proposing at 15506.  See also supra section III.B. 
434  See supra Requests for Comment #10-11.161 
 

48. Do commenters agree with the Commission’s characterization of New Rule 3b-16(a) 

Systems that trade crypto asset securities?  Please provide any relevant details that 

you believe are missing from the Commission’s description. 

49. Please provide any data on crypto asset securities trading volume and trading volume 

share of New Rule 3b-16(a) Systems. 

50. Please provide any information on the types of protocols used by New Rule 3b-16(a) 

Systems that trade crypto assets securities. 

51. Do commenters agree with the Commission’s characterization of other methods 

(other than platforms) of trading in the market for crypto assets securities?  Please 

provide any relevant details that you believe are missing from the Commission’s 

description. 

52. Please provide any information on the current market practice for bilateral voice 

trading and electronic chat messaging in trading crypto assets securities. 

53. Please provide any information on the role of bilateral voice trading in the market for 

crypto assets securities. 

54. Do commenters agree with the Commission’s characterization of crypto asset 

securities trading services?  Please provide any relevant details that you believe are 

missing from the Commission’s description. 

55. Would the Proposed Rules enhance regulatory oversight and investor protection in 

the market for crypto asset securities?  Would requiring New Rule 3b-16(a) Systems 

that trade crypto asset securities to register as broker-dealers help lead to these 

benefits?  Would the Proposed Rules lead to improvements in the safeguarding of 

confidential information in the market for crypto asset securities? 



162 
 

56. Do commenters agree that the Proposed Rules would reduce trading costs and 

improve execution quality for market participants that use New Rule 3b-16(a) 

Systems?  Do commenters agree that Regulation SCI would improve the resiliency of 

New Rule 3b-16(a) Systems in the applicable securities markets?  Do commenters 

agree that Rule 301(b)(6) would improve the resiliency of such systems in the 

applicable securities markets? 

57. Are there any other benefits of subjecting to the exchange regulatory framework a 

New Rule 3b-16(a) System which uses certain technologies that allow them to run 

portions of their operations using smart contracts deployed on an underlying 

blockchain?  Please explain. 

58. Do commenters agree with the Commission’s assessment of the entities that would 

incur costs in the crypto asset security market as a result of the Proposed Rules?  If 

not, please provide examples of additional entities that would incur costs. 

59. Do commenters agree with the Commission’s assessment of the implementation costs 

estimated in the Reopening Release?  If not, please provide as many quantitative 

estimates to support your position on costs as possible. 

60. Please provide any insights or data on the costs associated with the proposed broker-

dealer requirements for New Rule 3b-16(a) Systems that are operated by non-broker-

dealers. 

61. The Commission solicits comment on any circumstances in which actors within a 

group of persons, which can include, for example, the provider(s) of the DeFi 

application or user interface, developers of AMMs or other DLT code, DAO, 

validators or miners, and issuers or holders of governance or other tokens, may incur 



163 
 

costs in connection with their activities that may constitute, maintain, or provide a 

market place or facilities for bringing together buyers and sellers of securities under 

Exchange Rule 3b-16, as proposed to be amended. 

62. Do commenters agree with the Commission’s assessment of the costs for systems that 

use certain technology and trade crypto asset securities as described in section 

V.C.2.c?  Please explain. 

63. Do commenters agree with the Commission’s assessment that the compliance costs 

associated with bringing a New Rule 3b-16(a) System that uses certain technologies 

that allow them to run portions of their operations using smart contracts deployed on 

an underlying blockchain into compliance may be greater than those for other 

platforms that trade crypto asset securities?  If so, which costs do commenters expect 

to be greater, and why?  Please explain and share any relevant data. 

64. Do commenters agree with the Commission’s assessment of the costs that may be 

associated with bringing a New Rule 3b-16(a) System that uses certain technologies 

that allow it to run portions of its operations using smart contracts deployed on an 

underlying blockchain into compliance?  Do commenters believe that such costs 

could be significant?  Please explain and share any relevant data. 

65. Do commenters agree with the Commission’s assessment of the initial compliance 

costs for New Rule 3b-16(a) Systems that use certain technologies that allow them to 

run portions of their operations using smart contracts deployed on an underlying 

blockchain?  Please explain. 

66. Do commenters agree with the Commission’s assessment of the costs that miners or 

validators may bear?  Please explain and share any relevant data.  



164 
 

67. Please provide examples of automation of New Rule 3b-16(a) Systems by means of 

immutable smart contracts. 

68. Do commenters agree with the Commission’s assessment of the impact of the 

Proposed Rules on efficiency, competition and capital formation?  Do commenters 

agree that the Proposed Rules would allow for competition among trading systems on 

a more equal basis?  Do commenters agree with the Commission’s assessment as to 

the risks of increasing barriers to entry and causing current trading systems to exit the 

market?  Please explain. 

69. To what extent would the Proposed Rules increase the barriers to entry for new 

trading venues or cause some existing trading venues to exit the market?  How would 

these effects vary based on the size and/or type of trading venue and the securities 

market in which it operates?  Please explain. 

70. How would the Proposed Rules affect innovation?  Please explain.  Which provisions 

of the Proposed Rules would affect innovation the most and how?  Please explain. 

71. To what extent would the Proposed Rules cause existing trading venues to cease 

operating in the United States, if at all?  If the Proposed Rules would have any such 

effect, which provisions of the Proposed Rules would be most responsible for this 

effect, and how?  Please explain and share any relevant data. 

72. Do commenters agree with the Commission’s assessment of the effects of an 

alternative to delay subjecting New Rule 3b-16(a) Systems that exclusively trade 

crypto asset securities to the Proposed Rules? 



165 
 

73. Do commenters agree with the Commission’s assessment of the effects of an 

alternative to subject only New Rule 3b-16(a) Systems that trade government 

securities to the Proposed Rules? 

74. Do commenters agree with the Commission’s assessment of the effects of an 

alternative to subject only New Rule 3b-16(a) Systems that trade fixed income 

securities to the Proposed Rules? 

75. For purposes of determining compliance with the Fair Access Rule and Regulation 

SCI, an ATS must determine its trading volume to assess whether the ATS is subject 

to these rules.  Does an ATS have the ability to obtain the necessary information to 

calculate thresholds to determine if the ATS is subject to Regulation SCI and 

Regulation ATS?  Why or why not?   

By the Commission. 

Dated: April 14, 2023. 

 

J. Matthew DeLesDernier,  

Deputy Secretary.